First-half expansion pressures China's steel prices

First-half expansion pressures China's steel prices

Figures for the first half of 2005 suggest that China’s total steel production may beat initial estimates of 300 million tons by 20 million tons or more. The first six months of the year saw China’s steel production grow an astonishing 28.3 percent year on year to hit 165 million tons. During the same period, the country’s pig iron production increased 33.1 percent year on year, to 155 million tons, while its total steel output came in at 173 million tons, a 25.9 percent year-on-year increase. The China Iron and Steel Association had predicted that the country would produce nearly 300 million tons of steel this year. However, with 18 companies each expected to exceed five million tons of production this year, China, which is home to more than 800 steel mills, looks to be on pace to better initial estimates by nearly 10 percent. Hot rolled thin and wide strip; color coated sheet/strip; narrow cold rolled strip; hot and cold rolled medium thick and wide strip; and silicon steel sheet all saw noticeable production increases. However, the production boom meant that demand became saturated and inventories began to accumulate. Beijing’s introduction of tighter macro-economic control measures in April further exacerbated the situation, causing prices to become locked in the downward trend that the market has been experiencing over the past few months. Prices from the beginning of May to the end of May fell 5.21 percent on average, and the trend shows no signs of letting up in the near future. Even though the average steel price index at the end of May was 21 percent higher than that of the same period of 2004, it was only 4.8 percent higher than that of early 2005. Furthermore, the gap between the local prices in China and those in the international market has narrowed since the beginning of the year. A plethora of product in the domestic market means that steel imports have tapered off. Through the first five months of the year, China’s steel imports declined 31.5 percent to 10.7 million tons. On the other hand, exports are enjoying a boom year. Compared to the first five months of 2004, exports surged 170.8 percent year on year to 9.37 million tons in 2005. If the current trend continues, steel hungry China may actually end the year as a net steel exporter.