G. Chandrashekhar

Mumbai, May 30

THE latest data on steel production from China will send tremors through the steel world.

The rate of growth of Chinese production is almost exponential as April production reached an annualised rate of 343 million tonnes a year.

While total world crude steel production expanded by 6.8 per cent during January-April 2005, total Asian production increased by 14.3 per cent; and if one excluded China, total world production increased by a mere 1 per cent.

China's crude steel production increased by a scorching 25.4 per cent in April, and by 23.8 per cent in the first four months of 2005. Interestingly, during the same period, India witnessed growth of 21.5 per cent and 10.7 per cent respectively.

Concerns relating to a general slowdown in demand growth rates in all the main steel consuming countries are developing in the steel industry now. It is estimated that apparent consumption of steel which registered a 7.7 per cent growth in major consuming countries (the US, Japan, EU, China, Korea) has slowed to almost zero in the first quarter of 2005.

Apparent consumption of steel in main consuming countries was an estimated 662.7 million tonne in 2004 with average consumption in each quarter of 164 mt.

Both the US and the EU have showed negative growth in the first quarter of 2005. As the production growth is now in excess of demand growth globally, there is need for production cuts, commented Macquarie Research.

As the hopes that steel buyers would return in force following the May holiday have failed to materialise, steel price falls are gathering momentum.

Oversupply, government interference and weak overseas markets are all to blame for prices falling sharply over the past two weeks.

Internal market in China has declined by 1.4-1.8 per cent for cold-rolled and hot-rolled coils.

Intensified speculation over revaluation of the Chinese currency too is seen impacting the market.

As there is a steel glut in China with rapidly rising production, sellers have no choice but to reduce prices.

It is widely expected that smaller producers struggling for profitability may be forced to cutback production.

For China, iron ore could provide a bright spot. While the prices of steel have tumbled, spot import prices for iron ore have stabilised and may increase soon, Macquarie Research pointed out adding that buyers are gradually returning to the market following a 10-week absence while the import regulations were finalised.

Indian mines are reportedly trying to raise prices back to levels seen in late February before buying activity slowed and their efforts are supported by news of mine closures for safety reasons in Goa, which is awakening buyers to the possibility of supply tightness ahead.

(This article was published in the Business Line print edition dated May 31, 2005)
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