Overcapacity and slow demand could further soften steel prices in China

Steel prices in China are expected to remain soft and even slow further due to overcapacity and slowing demand, according to the international credit rating agency Standard & Poor's (S&P).
 
The agency forecasts steel demand in China to grow at 4-6 percent in 2012, compared with average annual growth of 10.7 percent in 2007-2011. S&P expects weak margins to negatively affect the profitability of China's steel industry over the coming years, adding that the central government might not be quick enough to respond and help the steel industry over the next few years, and most certainly not in 2012. However, it is believed that, thanks to the shifts in end-user steel demand, industry consolidation and newer technologies, the steel industry will pick up to better profitability in three to five years.
 
On the other hand, the performance of the Chinese steel industry could reflect on steel producers and raw material suppliers in other countries, most directly affecting the mining companies that supply raw materials to China from Australia and Brazil. Besides, Japanese and Korean steel producers are likely to face fierce competition for steel imports to China.
 
The rating agency also pointed out that weakened demand from the real estate sector, somewhat delayed social housing programs, and slower growth in infrastructure development will contribute to lower growth rates for steel. Higher demand from the automotive and infrastructure segments in western China will not be sufficient to offset the decline in the short term.