The Hindu Business Line : Slowing Chinese demand spells bleak future for steel

Mumbai, Oct. 3 The deterioration in global macro-economic conditions suggests a weakening demand environment for metals through the remainder of 2008.

Hit, in particular, would be steel, whose consumption is slowing in China, the world’s largest producer and consumer of the industrial metal. Construction activity in China has turned sluggish and this is likely to hit the steel market.

Because construction accounts for about half of steel end-use demand, a slowdown in construction activity (housing, infrastructure) is expected to exert negative pressure on steel demand and, in turn, steel prices.

In the first half of 2008, prices were driven to unprecedented levels by steel shortage and speculative buying by traders and end-users. “The recent weakening of the Chinese demand and a surge in Chinese exports, combined with weaker EU and US orders, has led to a major price correction,” commented an industry analyst.

Drop in price

No wonder, steel prices in China have been dropping and continued to drop in the last few days. Hot rolled coil, cold rolled coil, rebar and galvanised steel have shed anything between 4 and 10 per cent in price.

The prospects of a boost to real estate development in China are being debated. As most of the consumers are currently de-stocking, experts expect steel market correction to continue into the fourth quarter of 2008.

Stability hope

But there is a silver lining. Some stability in pricing may emerge as consumer de-stocking ends and production cuts are undertaken by Chinese, European and US producers.

The fortunes of nickel are linked to the stainless steel industry.

Weak stainless steel demand is seen hurting nickel market. Nickel stocks are at record levels. Currently, the metal is trading below $16,000 a tonne, which is considerably below the marginal cost.

This can spur production cuts. In the last quarter of the year, there is little chance of a recovery and prices are likely to show sideway movement.

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