China's Steel Industry Returns to Growth – Just Barely

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Ferrous Metals

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, current steel prices - MetalMiner IndXutilization 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.

today's metal prices - MetalMiner IndXIt 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.

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