Chinese steel price decline accelerating

Manufacturing is a lead indicator for economic growth and all signs point to a major slowdown in the steel sector.

China's steel riddle
The curiosity about the Chinese game plan is understandable for its dominant presence in the world steel industry. According to World Steel Association, global production of crude steel in 2011 rose 6.8 per cent to 1.527 bt. This is largely on account of China, which once again sprung a surprise lifting output by 8.9 per cent to 695.5 mt, giving itself a share of 45.5 per cent of world production. How much steel does the world expect from China this year? We understand the boom in real estate development and construction sustained Chinese daily steel output at over 1.9 mt for much of last year. This, however, fell to nearly 1.7 mt in 2011 fourth quarter and as we go forward we may see further production contraction in China, in case margins for the industry there do not improve.

China Steel Prices May Fall Amid High Inventories, Mirae Says
Baoshan Iron & Steel Co., China’s biggest publicly traded steelmaker, raised its products prices by at least 150 yuan ($24) a ton for March delivery, the second increase in three months, the company said Feb. 10. The market usually expects steel demand to rise as construction resumes after the weeklong Chinese New Year holidays, which ended on Jan. 29 this year.

“Construction demand for machine power remains weak, with a disappointing improvement post the Chinese New Year, due to insufficient cash injection from local governments into infrastructure projects,” Mirae Assets said in the note. “The current rise in ex-factory prices is mainly being driven by steel mills rather than end-user demand. We believe steel mills will have to compensate traders later when prices fall.”

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