China must focus on the right kind of steel

Since the start of this decade Chinese steel production and consumption has been growing in annual increments of about 20%, according to an article in “International Steel Review”, August 2003. From 123 million tonnes in 1999, the country’s crude steel output rose to about 180 million tonnes last year and is likely to hit at least 210 million tonnes in 2003 – a rise of more than 70% in four years. At the same time, the country is continuing to import tens of millions of tonnes of steel, providing a market for excess production in many other countries.
It is difficult, in principle, to accept that this boom can be sustained at its present rate. This is why the Chinese government has twice warned the country’s steel industry not to be too enthusiastic about building new production capacity. The growth of the last few years has been fuelled mainly by booming construction activity. If investment in infrastructure slows down, steel consumption will certainly be affected. That will influence mainly the long products sector. In contrast, carbon sheet and stainless steel demand growth is dependent less on building and engineering and more on industrial activity. Because of relatively low Chinese costs, these products seem assured of favourable prospects for expansion – unless other countries decide to block imports of manufactured goods from China.
If the construction boom sags, China could be left with an excess domestic supply of bar and wire products – depressing prices and causing losses for many steel companies that have expanded too fast. At the same time the country would still be heavily dependent on imports of higher cost steel products to feed its expanding manufacturing segment. If the Chinese authorities see demands for imported steel diminish in future years, they should be encouraging mills to make the right forms and types of steel and not the “wrong” ones.
(From “International Steel Review”, August 2003. MEPS (International) Ltd,

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