China’s apparent consumption of crude steel is likely to add just 4% y-o-y to 700Mt in 2012, now that steel demands remains sluggish on the back of weakening world economic growth, more volatile commodity markets, and a return of trade protectionism in many regional markets of China’s steel exports.

China’s overwhelming and unchecked steel supply is considered the fundamental reason for its steel market volatility. Even mired in losses, the majority of Chinese steelmakers are still unwilling to reduce output and instead pin their hopes on a market recovery. This has made steel inventories continue to grow and any market recovery even slower.

China’s steel industry has been urged by government departments and industrial associations alike to restrict output in 2012 and so secure a profit, given the skimpy margin due to the rising production costs.