China’s steel industry dwarfs that of any other country in the world — indeed, any other region in the world.
According to CISA, China could have as much as 900 million tons of installed steel-making capacity, but based on a China Daily report this week, utilization is running at no more than 80%.
The Chinese news organization said that during the first 10 months of 2012, China produced 602.23 million tons of crude steel, up 2.1 percent year-on-year, quoting figures from the National Development and Reform Commission. These numbers are illustrative of a number of issues currently facing China’s steelmakers.
Overcapacity is contributing to poor margins, along with slowing economic growth and a sharp downturn in construction; profits have slumped 54.3 percent year-on-year for the first 10 months of this year. Yet exports have surged 11.8 percent and imports dropped 12.2 percent, suggesting domestic demand is even weaker than the 2 percent growth figures are indicating.
The bulls may point to a current pick-up in November-December, with some suggesting it could be as much as 15-20 percent year-on-year over the same two months in 2011. But that is being disingenuous; the end of 2011 saw a severe contraction taking place when Beijing instigated a liquidity squeeze in an attempt to cool inflationary pressures following the 2009 stimulus boost.
It is too soon for November’s steel production numbers yet, but with the Chinese New Year approaching and a still relatively subdued mood, it seems unlikely there will be a double-digit rise in production numbers. The steel market is still oversupplied and the de-stocking cycle is no more than halfway through.
While China’s steel story is not over by any means, modest growth from here on is the order of the day.