CISA senior analyst Xue Heping recently predicted that China’s crude steel output may drop year- on year in 2012, the first time in 31 years, adding that the country’s crude steel output was expected to reach 678.68Mt this year, down 0.7% from 2011.

Xue said that the projection was based “on the macroeconomic slow-down and weaker steel demand in the world’s second-largest economy”.

China’s economy grew 7.6% from a year earlier in the second quarter of 2012, the slowest pace since the global financial crisis. A review of price movements in the past two years may shed some light on the future. The steel price declined 15% during the April-July period in 2010 as production started declining in July, with a daily crude steel output dropping from 1.84Mt to 1.6Mt. Again in 2011, steel prices fell around 15% during the period of August 2011- February 2012, as production began to drop as of September 2011 with the daily output down to from 1.99Mt to 1.66Mt.

The sector’s bleak profitability would force the domestic steelmakers to stop expanding production capacities.

In addition, the long-term conflict between the low price of steel and the high price of iron ore will also influence the market trend. Compared with steel companies, iron ore miners continue to enjoy high growth. In H1 2012, China’s iron ore imports jumped 9.7% from the year before. The price of imported iron ore fell this year, but the margin was still smaller than that of the decrease in the price of steel.

Source: China Metals e-mail