August 30, 2008

Chinese steel industry cannot sustain expansion - Analyst

It is reported that China's steelmaking industry cannot sustain its current expansion in production and exports due to limited resource supplies and a deteriorating environmental situation. However, as a net exporter of steel products, China will continue to supply global demand and increase the number of overseas steel mills in the future.

Mr Ma Zhongpu director of the market research centre with China Commodity Marketplace said "Constructing steel complexes in other developing countries that have both adequate raw material supplies and growing demand will help offset the risk from high iron ore prices, freight rates and product oversupply."

Mr Ma also called on the Chinese government to implement favorable policies, set up overseas development funds, and promotes consolidation in the domestic steel industry in order to ensure steel groups can compete on the international market for overseas projects.

Mr Ma said China is still undergoing rapid industrialization and urbanization, and this development is driving domestic demand, so it is difficult to determine what constitutes oversupply in terms of steel production in China. He said since this March, China's crude steel output has lingered at around 40 million tonnes to 42 million tonnes per month and it is unlikely that the country's crude steel output will exceed 490 million tonnes this year.

Although China has enjoyed rapid economic growth this year, its growth in steel product apparent consumption has been slowing down since 2004. In 2003, growth in apparent consumption stood at 25.75%. This fell to 11% in 2006 and 10% in the first eight months of this year.