China expected to export more steel
(Agencies)
Updated: 2005-04-30 11:11

China, the world's largest consumer of steel, will be a net exporter of the alloy in 2005 as rising production capacity in the country outpaces demand, leading to lower global prices, Goldman Sachs JBWere Pty said.

China's crude steel production in the first three months of the year rose 23.8 percent from 2004, outpacing consumption growth of about 11 percent, analysts Malcolm Southwood and Paul Gray wrote in an April 22 note from Melbourne, Australia.

"We believe this provides compelling evidence that China will be a net exporter of steel in 2005, and that this is likely to be a negative influence on regional and global steel prices," the analysts said.

China's demand for steel had led to prices more than doubling in the past two years in the country. China will account for nearly 80 percent of global steel demand growth this year, the International Iron & Steel Institute said April 19, while steel use may fall in the US, France and Germany.

"Any further growth in steel production -- which we believe to be extremely probable given our understanding of capacity additions -- must either be absorbed by higher domestic consumption growth, or result in net exports and/or a stock build," the analysts said.

Chinese import prices of slabs, which are used to produce flat steel products used in construction and manufacturing, has fallen 7.3 percent this year-to-date, according to Metal Bulletin. Prices of the material jumped 64 percent in 2004 from a year ago.

China's imports of steel products fell 35 percent in March from a year earlier, according to the customs on April 21, amid concerns the government will step up measures to cool the economy that grew 9.5 percent in the first quarter, more than economists had expected. Exports of steel products in March surged almost four times to 2.1 million tons.

China's output of steel products rose 27 percent in March to 30.7 million tons, according to Beijing-based Mainland Marketing Research Co, which compiles data for China's National Bureau of Statistics. That is the highest output since at least 1993, according to Bloomberg data.

"In the March quarter of 2005, domestic steel production has more or less completely displaced imports in the consumption total," Goldman Sachs JBWere's Southwood and Gray said.

The China Iron & Steel Industry Association on April 12 predicted the country's output of steel products will increase 16 percent to 345.3 million tons this year. Consumption of steel may rise only 10 percent to 343.8 million tons if the economy grows 8 percent, the government's target, the association said.

Consumption may rise to 355.7 million tons if the economy grows 9 percent, and fixed investment grew 20 percent, the association said.

US Steel Corp Chief Executive John Surma said on March 8 that China must curb its capacity growth or it "could be pouring steel into a market that is barely in balance."

Steelmakers elsewhere are cutting back production as demand slows globally. Luxembourg-based Arcelor, the world's largest steelmaker, said March 25 it will reduce output by 1 million metric tons in the second quarter in four European plants due to weaker demand.

"There has been some softening in prices, but there is still good demand," said Lakshmi Mittal, the billionaire founder of Rotterdam-based Mittal Steel Co, the world's largest producer.

Mittal Steel will cut production in the second quarter after prices dropped from record highs and profit in the first quarter more than doubled to US$1.1 billion.

U.S. steel demand may drop 3.5 percent this year to 112 million tons due to slower economic growth, said the International Iron & Steel Institute.

The Chinese government is trying to cap steel exports. It abolished a 13 percent tax refund on exports of finished steel products, including slabs, on April 1.

It may cut tax rebates to 11 percent from 13 percent on exports of construction steel on May 1, said Ma Haitian, a steel analyst at metal research company Beijing Antaike Information Development Co on April 20.

Construction steel, which is in oversupply in China, makes up 70 percent of China's exports, according to Antaike.

Steel prices in China may fall as much as 15 percent between April and the end of June as construction demand slows, UBS AG said in an April 12 report.

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