| The iron and steel market in
China is nothing if not dynamic.A recent TSI monthly review advised on the
one hand how crude steel volumes in June hit a record 59.93 million tons,
or 2 million tons per day, building on first half 2011 production that at
350 million tons was 9.6 percent up on the same period last year. Iron ore
imports however were up only 8 percent and in line with CISA’s goal of
increasing dependence on Chinese-owned ore sources — still mostly
domestic but increasingly coming from overseas — over those of
Australia, Brazil and India.
By 2015 the industry intends to meet half
its requirement from Chinese-owned mines. If steel growth were to continue
at 9.6 percent per year, that would leave BHP, Rio, Vale and lesser
suppliers with similar volumes if a smaller slice of the overall cake. But
steel growth at this level is looking far from likely in spite of what
China bulls have been saying.
Estimates for the first 20 days of July
show steel production dropping to 1.95 million tons per day as output for
the second half of the year is expected to drop to an annualized rate of
about 700 million tons – if the first half was 350 million tons, by
extension that suggests a 10-15 percent drop for the second half. Quoted
in a Financial Times article this week, Zhang Changfu, vice chairman of
CISA, confirmed the official expectation that “steel production growth
will slow down further in the second half of this year.”
Interestingly, the balance of products is
shifting as the economy adjusts to credit tightening and falling exports.
The manufacturing sector has slowed, as evidenced by the July PMI number
from HSBC, which came in below 50 for the first time this year. As a
result, flat steel sales (manufacturing is a key consumer of flat rolled
products for automotive, shipbuilding and machinery industries) have
weakened while long products have remained firm. Structural steel
sections, reinforcing bars and pipe are key products for the construction
sector still being driven by Beijing's social housing program.
The combination of cooling demand from the
manufacturing sector and greater iron ore supply from domestic and
overseas Chinese-owned iron ore mines could see a fall in both demand and
hence prices for iron ore. Lower input prices would allow Chinese steel
mills to reduce finished steel prices, a move that could start as soon as
September. With the backdrop of falling PMI figures from all major trading
blocks, raised sovereign debt fears, and weakening consumer sentiment in
the West, we could see not just Chinese, but global steel prices ease
later this year and next.
Source: Metal Miner |
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