Growth in Chinese steel consumption is expected to slow markedly in the second half of this year amid weakening demand from the construction, household appliance and automobile industries, according to industry experts.
Yang Siming, general manager of Nanjing Iron & Steel told a steel conference in Xiamen this week that most Chinese steel mills had cut output last month, because of shrinking demand and high costs of raw materials.
”We’ve been cutting production since last month, and according to my knowledge, most domestic mills are cutting output too,” Mr Yang said.
According to Steel Business Briefing, the steel consultancy, steel consumption in China is forecast to grow by only 8-10 per cent in the second half of this year, as little as half the 16 per cent growth rate for the first half of 2008.
Analysts predict that the reopening of steel mills that were closed during the Beijing Olympic games will do little to boost second half output.
Charles Huang, an analyst at BNP Paribas in Hong Kong, said that a lot of steel mills have closed in the last 12 months. But he added that “this has more to do with government orders to close down heavily polluting and inefficient producers than with the Olympics”.
Mr Huang said that a wider problem in the Chinese steel industry “is not capacity: it’s a slowdown in demand for steel products”.
The three major industries that consume steel – construction, household appliances and car production – are all showing signs of a slowdown at a time when capacity in the Chinese steel industry is increasing.
Chen Ying, chief financial officer of Baosteel, the Chinese steel company, said that while most steel mills in a 300km radius of Beijing were affected by Olympic shutdowns, this cut production from those mills by only 5-9 per cent in August. “It is still relatively small compared with China’s total output,” she said.
Ms Chen said weak domestic and overseas demand in the auto and home appliance industries would further depress demand for steel in the second half, though industrial sectors such as shipbuilding, energy, power equipment, and railways remain strong.
She said the slowing property market had little impact on Baosteel because its products are not heavily used in construction.
The knock-on effect of weakening demand for steel is already being felt in the shipping market, where the Baltic Dry Index has fallen 45 per cent since May, as Chinese steelmakers curb production, reducing demand for iron-ore shipments.
