On May 12th, Wenchuan County situated at the northeast edge of the Sichuan Basin suffered an earthquake, magnitude of 8.0 on the Richter scale, and was in many other provinces throughout China, and as far away as Beijing and Shanghai.

PanSteel was not impacted directly by the earthquake, and maintained normal production at its steel and vanadium plants located in southwest of Sichuan, 640km from the epicenter of the quake. However, PanSteel Changgang’s facility, located Jiangyou city of Sichuan province, and PanSteel Chengdu Iron & Steel, located in the Qingbaijiang District of Sichuan province, suffered damage and personal injuries, causing production to stop. Other subsidiaries or plants of the PanSteel Group, such as Chongqing Titanium Industry, Jinshan Refractory Materials, Meishan Cold Flection Type Steel, Wenjiang Sanatorium, and the PanSteel Hotel ceased operation after the earthquake hit.

A high level source from Steel & Vanadium Sales Department said it was impossible to predict how long this situation would last, and it was hard to estimate the losses arising from water and power cuts, as well as damage. The company’s most urgent job now was to assess and repair damage from the disaster, and then resume normal production. Supply of raw materials could become a problem for PanSteel Changgang Company, as the resumption of production is useless without roads for transportation of raw materials, as well as finished goods.

Statistics show PanSteel Changgang Company produced 36,168.79 mt of qualified finished steel production in April, up by 1,611.28 mt from March. The company expected to increase output during Q2 compared to Q1, since the spring was a peak production period. However, the extent of the impact on annual output is unknown as schedules for resumption of production have not been made known.

Chongqing Iron & Steel, and Kunming Iron & Steel maintained normal production since their operations are over 300km from the earthquake area.

Transportation of goods will suffer heavily as highways, railways, and bridges were damaged or isolated. Over 200 trains along Chengkun railroad were trapped due to blocked tracks, causing PanSteel goods to pile up. Currently, there are 175 trucks loaded with PanSteel products stuck at PanSteel facilities. Transportation of coal from Sichuan and Inner Mongolia provinces was shut down, while transportation of coal from Yunnan and Guizhou provinces was slowed, heavily impacting supply of raw materials and fuel. Additionally, damaged water and power supply systems were equally as disastrous for iron and steel producers as the damage to their own facilities.

Most buildings and facilities at iron and steel producers had stricter earthquake-proof designs and were less damaged than residential and commercial buildings. With regard to production, rolling facilities were more affected than smelling as rolling requires a high degree of stability and accuracy. The immediate concern was not rebuilding of premises, but re-adjustment of rolling procedures after rebuilding.

The immediate demand arising from reconstruction is not as great as the market expected, but producers of iron and steel used for construction will be the largest beneficiaries.

It is the opinion of CBI that the impact of the earthquake on the steel industry is not as serious as the snowstorms in early 2008 because Sichuan province is not a center of manufacturing or heavy industry within China. In 2007, the gross production value of Sichuan province only accounted for 3.9% of China’s GDP. However, the earthquake may intensify tight supply of goods and cause increases in inflation as Sichuan province is a major area for the production of grains and pork.