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Chinese mills likely to decimate global rivals after domestic debacle

Steel News - Published on Thu, 26 Jul 2012

Global steel industry has been through turbulence over the past 1 year. Unending streak of recession owing to EU crisis and disappointing revival in US has diminished any flicker of revival.

Chinese juggernaut has never stopped moving but in the process smothered any chance of revival in the domestic market. Paradoxically Chinese mills have never let up on production averaging around 60 million tonnes per month and nearly 2 million tonnes per day in H1.Notwithstanding global slowdown China is likely to produce 725 million tonne in 2012 growing by 6% YoY.

It baffles rationality for nation struggling to come to terms with the reality of sluggish economic growth of 8.1% in May after tasting blood at double digit numbers.

Working on the lame premise that major mills would yield market share to the minors in a fragmented domestic industry has culminated in preposterous social inventory hovering around 15 million tonnes. As the government drags its feet on relaxing credit and kick starting slew of infrastructural and housing projects crisis deepens.

A phenomenal drop of 6% within July itself has sent shivers. Pressure finds its way out. Chinese mills have re-emerged on the global arena with the urgency of easing accumulated volumes. China boosted first half steel exports to 27.26 million tonnes, the highest for a six month period since 2008 sending affirmative signals of an inevitable price war looming in this region. Monthly shipments abroad rose to 8.7% of domestic output last month, the highest proportion since July 2010.

Ironically steel majors in Europe have been shuttering capacities to align supply with demand, but Chinese bandwagon rolls on with USD 23 billion investments in new mills to stimulate auto sector and housing sector demand.

Production splurge in Chinese mills stands in stark contrast to the pall of gloom engulfing their trading partners. Notably:
1. HRC prices in Europe has fallen by 6% during the last 1 year
2. Australian mills are pruning production faced with strengthening AUD
3. Profitability at European blast furnace steel mills has plunged 23 percent in the past year
4. The ratio of profit to sales at Japanese steel mills ended March 31 was -0.3, the lowest since 2009.

On the flip side Chinese steel capacity has expanded to 900 million tonnes with about 80 million tonnes addition in the last 1 year alone. Declining PMI to 50.2 from 50.4 in June over May augurs warning for expanding capacities.

With undiminished vigor despite protectionist measures being adopted by USA and Europe has shifted to focus to nearby SE Asian market. Western steel majors have suffered an appalling opportunity cost losing and export share to Chinese both in domestic as well as international market.

Despite an all out war by European, American and Asian countries on Chinese pillaging export from China is expected to expand in the coming days borne out of domestic compulsions.

Source - Strategic Research Institute

Posted By : admin on Thu, 26 Jul 2012
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