With 2007 having just begun, it is natural that minds should turn to the prospects that lie ahead in the coming 12 months. Over the past year,
China's steel industry experienced a period of rapid development. Due to the strong steel demand from both local and overseas markets,
China's national steel output broke all-time records again and again during the year. In addition, steel exports also made remarkable progress. However, along with the continuation of the great changes in
China's economic situation in 2007, the development of
China's steel industry is likely to encounter some obstacles. These difficulties are expected to derive from a drop in the growth of new
investments, and especially from a fall-off in market demand.
In 2006,
China's GDP growth rate was close to 10 percent. This rapid growth could be accounted for mainly by the huge domestic investment and the extraordinarily levels of commodity exports. In 2007, the growth rate in
China's huge domestic investment is likely to drop by a small margin. Meanwhile, the steel demand from the EU and
North America is likely to be influenced negatively by the weak economic cycle.
Local market
The fall-off in domestic investment growth will be an inevitable trend in 2007. It is expected that
China's yearly fixed assets investment growth rate will fall to 20-23 percent from the level of 26-27 percent in 2006. The reasons can be summarized as follows:
Firstly, in 2006 there were too many new investment projects, a certain number of which fall into the ’big project' category. The total number of new projects reached around 250,000, with a total value of RMB 20 trillion (USD 2.56 trillion). Of these, there were many steel and steel-related projects, for example, relating to machine and engine manufacture. This will lead to a drop in the number of new investment projects in 2007.
Secondly, the government has been carrying out serious investigations into illegal projects since October 2006. The result has been a sharp decrease in the growth of new
investments. During October and December, this figure dropped to 15-17 percent. These investigations are expected to continue in 2007 in order to tackle the abundance of outdated steel capacity, unapproved projects and projects which produce seriously high levels of pollution.
On the other hand, perhaps the major cause in favor of new
investments is the great quantity of RMB currency circulating in
China at the present time. Furthermore, since all governmental officials will face new national elections in 2007, many local governments now have a strong urge to back new
investments.
Overseas market
According to the analyses of several international economic institutes, the world's economic development is expected to slow down a little in 2007. A growth rate of 4.9 percent has been predicted for the year, down 0.2-0.3 percent from 2006. The
Japan and USA steel markets, which saw a boom in 2006, are expected to enter a weak period due to the drop in their economic growth. In fact, since the second quarter of 2006, the economy of the USA has been slowing down. Entering November, the
US dollar began to depreciate remarkably. If this trend continues in 2007, a large amount of capital will probably be withdrawn from the USA and, if this happens, it will push the
US economy down further into a negative trend. Regarding the EU market, due to the domestic steelmakers' failure to implement a steel price hike in the fourth quarter, overall price levels have started to drop. Adding seasonal factors, the downward trend in steel product prices is expected to last till the middle of 2007, and maybe even longer.
Summing up, the overseas demand for steel will probably drop in 2007. In this context,
China's steel exports can expect to face a difficult time this year.