The Hindu Business Line : China emerges as net importer of steel

DESPITE rising domestic production, China is now a net importer of steel with a growing appetite for the metal. Defying the weak pricing environment and reversing a month-on-month decline for three months, Chinese steel production reached a new high in August, while imports too continued to be large.

A combination of large production and imports indicates a robust increase in China's consumption. Last month, China produced 30.5 mt of steel (359 mt on an annualised basis), 28 per cent higher year-on-year. Pig iron output was ahead 30 per cent year-on-year at 28.1 mt (31 mt annualised). Production growth is unlikely to slow in the months ahead, experts said.

The steel industry policy has unleashed a `race to be the biggest' among the steel companies, with management focused on growing production volumes over quality and price, commented Mr Adam Rowley, Metals Analyst with Macquarie Research — Metals and Mining.

August trade data has shown that steel exports fell sharply. Semi exports were only 380,000 tonnes in the month, the lowest since May 2004. Finished steel exports were only 1.33 mt, their lowest since September 2004. The decline in exports should please the authorities who reduced VAT export rebates earlier this year as a pre-emptive action against growing regional concern over growing Chinese steel exports, the analyst said. He added that exports are also suffering from a weak regional pricing environment, and with plenty of commodity grade steel available from regional mills, few buyers are interested in low quality Chinese material. At 2.1 mt of finished steel and 80,000 tonnes of semis, import volumes had changed little from July levels. Imports are holding up, as they are predominantly high quality steel, which China cannot produce domestically, and which end-users purchase overseas on long-term contracts.

"China's return to being a net steel importer (of 530,000 tonnes) combined with record domestic steel output meant apparent consumption accelerated to a new high in August," Mr Rowley commented. Apparent consumption has been growing at a 25-30 per cent rate for the past four months and anecdotal evidence suggests stocks are beginning to build.

With export sales channels largely cut off due to recent tax changes, Chinese steel prices will be lower in the month ahead, the expert predicted.

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