China Ramps up Steel Production

Friday, July 26th, 2013
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Despite a weakening domestic economy and subdued global manufacturing and construction conditions, China continues to ramp up production of steel, further exacerbating world oversupply and forcing prices down as the country’s exporters dump excess product on overseas markets.

China, which produces around half of the world’s steel, churned out a whopping 389.9 million tonnes over the first six months of this year according to estimates from the World Steel Association (worldsteel) – up 7.4 per cent over the same period in 2012.

As a result, worldsteel estimates of overall global production volumes (789.8 million tonnes) are up two per cent even as steel makers elsewhere pared back operations.

Around the world, steel manufacturers have been impacted as subdued economic conditions have seen prices tumble by around one quarter since their peak in early 2011.

Australia has not been exempt, though steel makers here have gained some relief from the weakening dollar.

Earlier this month, local mining and steel manufacturing company Arrium (formerly OneSteel) was forced to slash $480 million off its earnings forecasts amid massive write-downs, partly a response to a review of the value of its steel businesses.

world steel prices

Moreover, the latest report follows preliminary data in China which shows manufacturing activity is expected to decline again this month following a contraction in June – reinforcing fears about a slowing Chinese economy and steel makers in that country being forced to dump excess stock on world markets and creating further downward pressure on prices.

While lower prices for steel help alleviate cost pressures for the Australian construction industry at a time of slow demand, they also reinforce fears about the viability of local steel manufacturers and the longer term implications for the domestic supply chain.

In Australia, steel production has fallen by a just over one third over the past two years (34 per cent) as tough market conditions forced producers to cut back on capacity.

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