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12. December 2010

CN - Steel maker Delong braving the consolidation wave

According to industry analysts China steel-making capacity is in excess of around 100 million tonnes. But this is expected to change in the next three to five years as the government sets out to consolidate the industry and weed out smaller and inefficient players. But one private steel mill plans on going strong taking on the competition from state owned players.

China demand for steel in the coming years is expected to grow, although at a slower rate compared with the last decade.

Mr Ding Liguo executive chairman of steel maker Delong Holdings said but margins in the next five years are likely to be higher. He said that "The value of iron mines is going to drop by 2013. But because more money has been invested in iron ore than steel production in recent years, prices are going to fall as investors turn to steel production next. With that in mind, the company will focus on expansion and reorganization through acquisition."

His upbeat outlook is a sharp contrast to 2008 during the global financial crisis when the company lost a billion dollar deal with Russian steel maker Evraz Group.

The Chinese government, protective of the steel industry had blocked the sale of a USD 1.5 billion Delong plant. Bankruptcy was imminent.

Mr Ding said "We already ordered 1 million tonnes of steel powder from abroad, a contract which we couldn't breach. But prices for raw material had by then dropped by 50%. It didn't help that our deal with our Russian partner fell through which resulted in a huge loss for the company. That was the darkest period in my career."

But he wasn't quite ready to throw in the towel.

The steel manufacturer changed its production line to cater for alternative demands, making steel pipes for transporting petrol and natural gas, as well as silicon steel used in machinery.

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