China is cutting steel production following falling prices and a drop off in demand from construction, automobiles and household appliances according to the Financial Times. Producers in northern China, notably Shougang Steel, Shandong Iron and Steel, Hebei Iron and Steel, and Angang Steel got together to discuss cuts of up to 20m tons. Apparently it’s not just the effects of the global credit crunch. Demand in China has been softening for some months now but steel producers are caught between much higher iron costs and a falling market for finished steel. Margins are under pressure and production cuts are the only answer.
Jing Ulrich, head of China equities at JPMorgan, is quoted as saying, The sharp slowdown in the property market is having a severe impact on Chinese steel producers, she said, noting that the property sector accounted for 38 percent of steel industry demand. It is increasingly looking like strong on-going growth in China is not a forgone conclusion, Baosteel’s chairman recently said the era of rapid steel industry growth will soon be remembered as history.
It would seem the Chinese are not the only ones willing to cut production to shore up prices. ArcelorMittal says it is ready to cut output by 15 per cent in the final quarter of this year compared to the same period in 2007. Other companies such as South Korea’s Posco and ThyssenKrupp of Germany could adopt similar strategies.
What a difference 5 months can make, back in June we were struggling to get an allocation! Check out our blog post from yesterday on Chinese production declines for aluminum.