China – A recovery in China’s steel market is not yet in sight as declining exports and excessive production capacity are continuing to haunt the industry, according to the China Iron and Steel Association (CISA).
Luo Bingsheng, CISA’s Executive Deputy Director, told a recent conference that the increase in steel prices between December and February should not be viewed as a sign of recovery. The country’s steel market would remain subdued this year because of shrinking demand and huge capacity, he added. And CISA’s Vice Secretary General Qi Xiangdong attributed the higher prices to an increase in stockpiling. ‘The financial crisis and the domestic economic slow-down resulted in contraction in both overseas and domestic markets,’ he said.
According to the Beijing Lange Steel Information Research Center, many steel-consuming industries have been seriously hit – especially the construction, automotive and shipbuilding sectors – and this has caused a steep drop in steel demand and therefore eroded China’s steel exports.
According to the General Administration of Customs, China exported 1.91 million tonnes of rolled steel in January, a decline of 2.22 million tonnes or 53.8% when compared to the same month in 2008. Steel exports were 1.26 million tonnes or 39.7% below their December 2008 level.
Prospects are not encouraging as the World Steel Association has predicted that global demand for steel will fall more than 10% in 2009. The Republic of Korea and the USA, the main importers of Chinese steel, are expected to post declines of 9.5% and 10%, respectively, while Japanese demand is expected to slide 31.6% in the first quarter.
According to Mr Luo, domestic demand in China started to shrink in the second half of last year and would continue to decline in the first quarter of this year as the financial crisis continued to spread. ‘It is difficult for the steel industry to pick up until the domestic auto, shipbuilding and manufacturing sectors are revived,’ he said.
The country hammered out a Yuan 4 trillion stimulus plan in November last year in a bid to boost the economy. Mr Luo expects the package to begin benefiting the steel industry towards the middle of this year or in the second half.
Excessive production capacity is seen to pose another challenge for the domestic steel market: capacity reached 660 million tonnes at the end of last year while crude steel output edged up 1.13% to 500.5 million tonnes. The growth rate was 14.5 percentage points lower than a year earlier. The figures show that some 160 million tonnes of capacity was left idle – mainly among the high-energy-consuming and highly-polluting small steel mills, suggested Mr Luo. Output this year is expected to stay the same or even to decline.
According to CISA, the aggregate net profit of 71 medium-sized and large steel producers fell 43% to Yuan 84.6 billion in 2008 as weak demand drove down prices. And 15 steel producers recorded full-year losses totalling Yuan 8.5 billion. Experts partly blamed excessive purchases of iron ore for steel companies’ losses in 2008: China imported 443.7 million tonnes – an increase of 60.6 million tonnes compared to a year earlier, leading to huge inventory build-up.
Mr Luo noted that steel prices had begun to fall again since February 11 this year because of no obvious increase in domestic demand.
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