IMPACT OF CHINESE
ECONOMIC SLOWDOWN ON GLOBAL STEEL INDUSTRY-
- Chinese construction sector, which accounts for 55% of apparent steel demand, is facing a pessimistic outlook causing demand woes. Domestic demand from the construction industry is pegged to grow at rate lower than real GDP for next few years.
- Steel output in 2014 (820 million tons) exceeded apparent demand (approximately 740 million tons) by almost 80 million tons
- Steel exports from China rose by 50.5% Y-o-Y to reach 93.78 million tons in 2014.
- Mills are running on a food to
mouth basis with some even reported to be working only for 7-14 days of
the month. Average domestic operating rates were 53% in January 2015. Notable reduction in iron ore stocks and
low profit margins
- Steel exports have risen nearly 20 times over the past decade
- Rigorous plans to keep exports above 10% of total production
- Cancellation of rebates for few grades of steel, antidumping measures taken by export markets and appreciation of RMB to remain as key challenges in 2015.
According to China's Ministry of Industry and Information Technology, China produced 820 million
tons of crude steel in 2014 (0.9% higher than past year). Nevertheless, apparent
steel consumption fell by 4% (to reach 740 million tons) which was the first
such decline in over two decades.
Overcapacity and unwillingness of state
backed steel mills to reduce production has caused significant levels of
oversupply in the Chinese market. This has caused China to resort to alleged
“dumping” of their products to other countries.
China’s steel exports rose 63% to reach 9.2
million tons in January 2015 compared to the same period last year.
China, which produces almost half of global
steel, wasn't expected to reach peak production levels until 2025.
Key
Economic factors:
GDP
Growth
- The International Monetary Fund has cut its forecasts for China's economic growth to 6.8 per cent and 6.3 per cent for 2015 and 2016 as compared to 7.1 per cent and 6.8 per cent.
- China’s GDP growth during Q1 2015 (7% rise compared to the same period last year) witnessed its slowest growth since the global financial crisis.
Industrial production
- China’s industrial production decreased during 2014 due to slowdown in housing sector, softening domestic demand.
- China aims to grow industrial production at 8% in 2015. Although the target is lower than in 2014, it will be a difficult task as the economy has entered a period of slower growth.
Construction growth
- Construction activity remains a large percentage of China’s GDP
- The growth in construction will be moderate as the demand for housing in China, including residential and housing improvement purposes, is about eight to nine million houses a year, which is much lower than the number of newly completed projects and those under construction.
Automobile Sales
- China expects passenger-vehicle sales to rise 8% to 21.3 million vehicles in 2015, compared with 9.9% growth in 2014.
- Though the pace is stronger than current outlooks for Europe and the U.S., it still marks a sharp slowdown from a 16% gain in 2013 and even higher rates in previous years.
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