World Economy

China Steel Consumption Shrinking

China Steel Consumption ShrinkingChina Steel Consumption Shrinking

China’s steel consumption dropped this year for the first time since at least 2000 due to slower economic growth, leading to a surplus of iron ore in the country and a more than 40 percent plunge in prices of the steelmaking raw material.

But top global miners like Vale and Rio Tinto, which have invested billions of dollars to ramp up output to sell more iron ore to China, are still convinced that Chinese demand has yet to peak with an urbanization drive there expected to last at least another decade, Reuters said.

Apparent crude steel consumption in China, the world’s top consumer and producer of the alloy, fell 1.9 percent on year to 61.9 million tons in August, Wang Xiaoqi, vice chairman of the China Iron and Steel Association, told an industry conference.

“There are many reasons for this – the economy slowing and the economy undergoing restructuring. Steel consuming sectors have cut their demand,” Wang said.

With China now focusing growth on consumption and away from investment that has fuelled years of massive expansion in China’s steel sector, Wang said: “From now, domestic steel output and consumption won’t rise along with economic growth.”

 Consumption Drops

China’s steel consumption dropped 0.3 percent to 500 million tons in the first eight months of the year, he said.

China’s economy got off to a weak start this year as first-quarter growth cooled to a six-quarter low of 7.4 percent. Beijing responded with a flurry of stimulus measures that pushed the pace up slightly to 7.5 percent in the second quarter, but soft July and August data suggest the boost is rapidly waning.

The decline in China’s steel consumption this year marks the first time demand has shrunk since 2000, said CLSA commodity strategist Ian Roper, who has tracked the data since that year.

“We’ve been bearish for a while saying property construction activity has peaked, but maybe the scale of the decline will be faster than we anticipated,” Roper said.

“This reinforces our view that there will be a multi-year downtrend in demand for iron ore, and there’s no hope for a recovery in prices to anywhere near $100/ton,” he added.

 Iron Ore Falls

Iron ore fell below $80 a ton this week for the first time since September 2009 and is on track for its biggest-ever annual drop amid a deep supply glut stoked by top, low-cost producers including Rio and Vale.

Shanghai rebar futures, which plunged more than 3 percent to a record low on Thursday, have shed around 30 percent of their value this year and could come under further pressure if output remains high amid poor demand.

China’s crude steel output is likely to hit 826 million tons for the year, said Wang, up 6 percent from the official 2013 output figure released by the government but only slightly above the 822 million tons cited in August by leading steelmaker Baoshan Iron and Steel.

Weak demand has been a big strain on China’s steel sector this year with Beijing, in a bid to cut down overcapacity, not too keen on rescuing companies as it has done before for fear of bloating the government’s bad debts.

Sinosteel, China’s biggest state-owned steel trader earlier told financial magazine Caixin that it was facing financial problems due to unpaid bills from customers, but denied rumours that it is struggling because of overdue loans amounting to 10 billion yuan ($1.85 billion).