To date,
China's
steelmaking productivity has continued to maintain its high level, with daily output at around 1.36 million tons.
China's
steelmaking capacity is due to touch the annual figure of 500 million tons by the end of this year. In 2005, yearly output was 349 million tons, while output in 2006 is expected to reach 400 million tons. Undoubtedly, such impressive growth in steel output will have serious consequences for the local market and will do harm to the balance of supply and demand. Analysts estimate that the predicted increase of between 60-70 million tons in
China's steel output capacity by the end of 2006 will result in an industry output approx. 100 million tons higher than demand in 2007. It would seem well nigh impossible for the local market to digest such an abundant surplus of steel products.
Though supply continues to increase sharply, domestic demand has not seen a corresponding rise. On the contrary, due to a number of significant factors, the domestic demand for steel is now restricted and this negative trend is expected to last for at least a certain period into the near future. In parenthesis, it may be said that mitigating the slackness in demand has been the steadiness of capacity utilization rates at 86.3, 79.1 and 80.9 percents respectively for 2003 to 2005.
On the other hand, the major factors which are impacting negatively on demand are as follows:
Growth of China's urban fixed assets investment has seen continuous drop
In order to control and restrict overheated investment,
China's government has since 2005 issued many related policies and measures, the positive results of which are appearing now. During Jan-Jun 2006, national urban fixed assets investment grew by 31.3 percent year on year. In 2006 up to July, August, September and October (latest month available), the figure dropped to 30.5, 29.1, 28.2 and 26.8 percent respectively. In addition, it has been reliably reported that the growth of investment under the control of the Chinese local governments dropped by 1.6 percent up to the end of September. It's well known in
China that the major cause of overheated investment is the failure of local governments to adhere to state policies. The drop in local investment-related growth shows that the local governments are now being controlled more effectively by the central authorities.
Real estate market seems to be entering a though situation
Up to October, the total investment in real estate in
China was RMB 1.46 trillion (USD 0.187 trillion), with a yearly growth rate of 24.1 percent. However, the sales situation is very unfavorable. More and more prospective buyers are adopting a wait-and-see attitude due to the high house price levels. The building contractors are currently short of capital and lack sufficient funds to invest in and develop new housing projects. Furthermore, due to the state's financial policies, it's difficult for the building contractors to borrow money from the banks. No money means that there are no new projects in the
construction industry, which is the major market for steel.
Large-scale investigations and clean-up activities continue
Due to a large number of illegal investment projects and corruption,
China's economic health is being seriously threatened..To guarantee the national economy's healthy development, the Chinese central government has made up its mind and taken strict steps to investigate and clean up all suspect cases. As a result, many worried investors and government officials are now taking steps to clean up their act. Their activity in this direction means that they have less energy and time to focus on new
investments and projects.
Besides the above, seasonal causes and disorderly prices in the steel market have also put the market under pressure. In the near future,
China's steel market is likely to enter a period of reduced growth, with steel prices also dropping accordingly.