Advanced manufacturing may help firms circumvent falling margins

If the lottery system allowing people to purchase automobiles in first-tier cities was expanded to all major cities across the country, it would be a big damper for the country's steel industry.

A Chinese employee taking notes while a foreign technician explains the methodology for steel plate manufacturing at Tangshan Iron and Steel Group Co. Eyeing the promising market of automobile-use steel products, Tangsteel, a subsidiary of China's largest steel maker Hebei Iron and Steel Group, is increasing steel sheet production by teaming up with foreign companies. Provided to China Daily

China's steel industry has been suffering from overcapacity and declining demand this year, while major producers have increasingly focused on the automobile market, which can bring higher profits.

However, with an economic slowdown and the lottery policy, steel products for automobiles have been declining this year, said Zhang Tieshan, an analyst from steel information provider Mysteel.com.

"The sales of heavy machinery vehicles have declined more dramatically than the sales of cars because of macroeconomic conditions," he said.

Steel is the key material for automobile manufacturing. It takes up about 85 percent of all materials for a heavy-duty vehicle and about 64 percent for a family car.

Therefore, the sales of such steel products are closely related to the automobile market, Zhang said.

Chinese automobile output clocked 40 to 50 percent annual growth in 2009, a boom for both the auto market and related steel producers.

"However, the opportunity has gone and a similar situation will never happen again since China started to control automobile purchases two years ago," said Zhang.