China’s record steel deluge seen easing

China’s record steel shipments will shrink next year as overseas demand slows and global trade friction increases, according to the China Metallurgical Industry Planning and Research Institute.

Net exports of products from the world’s largest supplier are set to contract 8% to 90 million metric tons from an estimated 98 million tons this year, Li Xinchuang, president at the institute, said in a briefing in Beijing. The country’s crude steel output will probably drop 3% to 781 million tons next year from 806 million tons in 2015, the institute estimates.

China’s mills are battling against losses, oversupply and sinking prices as local consumption declines for the first time in a generation. The fallout from the steelmakers’ struggles is hurting iron ore prices and boosting trade tensions as mills seek to sell their surplus overseas. Shipments of products have jumped 25% this year and are compounding a global surplus that will probably last for years, according to Standard & Poor’s Ratings Services.

“Exports will have a hard time growing or even matching this year’s level because of trade disputes and softening demand in many markets,” Li said in a phone interview on Monday. “Domestically, traditional industries are still destocking, reducing capacity while investment and consumption are insufficient.”


Construction Use

Consumption of steel products will slide 3% to 648 million tons in 2016 from 668 million tons this year, according to the planning institute. Demand from the construction industry, the biggest user of steel, will probably contract 7.2% this year to 360 million tons and decline further to 350 million tons in 2016, it said.

Steel producers globally have been protesting against the rising tide of cheaper supplies from China and sought protectionist measures from governments. India will step up constraints before the year-end, according to Steel Secretary Aruna Sundararajan last week.

China is ready to pull the plug on more loss-making plants as an expanding service economy and aging workforce ease the restructuring of heavy industry, Goldman Sachs Group said in a note dated December 6. A price slump and deepening oversupply will drive a wave of defaults in industries from steel and coal to metals and cement, analysts including Yan Yan and Christina He said. Unlike in the past, the authorities are ready to implement a “slow and painful” reform of the commodities sector, they said.

©2015 Bloomberg News




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