Strong demand for steel in China leads to overinvestment

Strong demand for steel in China leads to overinvestment

According to the latest reports in the market, China's economy is likely to suffer from overinvestments being made with the intention to meet the strong demand for steel in the country. Related with the strong demand, China's output, export, import and consumption of steel have increased lately in serious amounts. Statistically, China's steel exports have increased by 137% and reached up to $621 million in H1 of 2003, compared with the same period last year, although the epidemic ailment SARS had an adverse effect on the economy of the country. Moreover, consumption of cold rolled flat sheet in H1 of 2003 increased 325'000 tons, compared with the same period of last year and this amount is expected to reach up to 2.65 million tons by the end of the year. Output of cold rolled flat sheet is expected to increase to 700'000 tons from 490'000 tons recorded last year. Increase in production of steel is also effective on automobile and house construction sectors. In H1 of 2003, output of automobile has increased by 42%, compared with the same period last year, whereas the increase in construction sector is 31%. Due to strong demand for steel in China, investments in steel sector have increased and it has caused loans by all financial institutions to increase by 23.2% in H1 of 2003, compared with the same period last year and financial volume of the increase corresponds to Yuan16 trillion ($1.94 trillion). Currently, the economy experts are worried about these investments carried out in China to meet the strong demand for steel, due to its relation with the Olympic Games, that will take place in year 2008. According to experts, after the completion of the construction, a sharp decrease in the demand for steel is likely to occur. As a measure, the government warned steel producers and investors to be careful about the risk of overproduction and overinvestment earlier this month.