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Message: China Projects Modest Steel-Production Growth

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China Projects Modest Steel-Production Growth

posted on Mar 27, 13 08:25PM

China Projects Modest Steel-Production Growth

(Reuters)
Updated: 2013-03-26 08:32
Counter: 107

China's crude-steel production has reached a "plateau," with growth likely to be moderate compared with the breakneck pace of much of the past decade, the country's top economic-planning agency said.

China's consumption of iron ore and production of steel rose by double-digit percentages-in tandem with economic growth-in most years between 2000 and 2009. A gigantic economic-stimulus program, intended to offset the effects of the global financial crisis, helped to boost steel output by 13.5% in 2009.

A steel factory in Ganyu county, China, last month; the country's top

economic-planning agency projects only modest growth in steel production ahead.

But this year, output may increase by just 4% from the 2012 level, to 746 million metric tons, the National Development and Reform Commission said Monday. That would be largely in line with growth in iron-ore demand.

Double-digit growth rates aren't likely in coming years, the planning agency said, because the slow recovery of developed economies since the financial crisis means global demand will likely grow only gradually.

"Though industry sources say the [global] economy in 2013 will be better than last year and steel demand will certainly grow, downstream demand is only recovering very mildly," the commission said.

China's relatively muted view of its own steel demand contrasts with global ore miners' forecasts at an industry conference last week. The mining giants projected confidence in China's demand, saying urbanization in the country will continue to sustain prices near or above current levels.

Growth in production of crude steel, widely seen as a barometer of industrial consumption in the world's second-largest economy, has slowed each year since 2009. Last year, it hit 3.1%, official data show, as consumption came to 716.5 million tons.

The commission said iron-ore demand this year may rise by 50 million tons, equivalent to a rise of around 4.8% from last year, according to a Wall Street Journal calculation. The China Iron and Steel Association said last month that iron-ore demand in 2013 will likely be around 1.1 billion tons.

The small rise in China's appetite isn't likely to offset increasing global iron-ore supply. The commission forecasts world-wide production to be 300 million tons greater in 2015 than this year, and 900 million tons greater at some unspecified future point. China's own ore production will likely grow this year by 20 million tons, just 1.5% of its annual domestic output.

At last week's conference, Fortescue Metals Group Ltd. Chief Executive Nev Power said iron-ore prices are sustainable between $120 and $130 a ton, and that it is unlikely new ore supply could push prices down to the $100 level any time soon. Fortescue is almost wholly dependent on demand from China. Vale SA Chief Executive Murilo Ferreira said at the same conference that iron ore's price could reach as high as $145 a ton.

"[China] is the big growth market for steel and the big growth market, therefore, for seaborne iron ore, so that is the primary focus as we go forward," Fortescue's Mr. Power said in Hong Kong. "It will be some decades to go before we see any reduction in [Chinese] steel demand."

The price of iron ore has fallen to around $135 a ton over the past month, according to data from the Steel Index. That is still comfortable for miners-especially compared with the sub-$90 prices of last August. Spot prices for the 62% grade of ore rose more than 70% between then and mid-February, to around $155 a ton.

The Chinese economic-planning agency attributes higher ore prices not to increased Chinese demand but rather to price-setting power among global miners.

"Global miners are relatively concentrated and can postpone [capacity-adding] projects and reduce output to adjust supply," it said. "China's steelmakers are in comparison fragmented, and incur high costs for stopping furnaces."

The commission earlier this month accused major miners of selling their iron ore in a nontransparent tender process that tends to push prices higher.

In response, global miner BHP Billiton Ltd. has said it "seeks to operate its assets at full capacity and produced record volumes of iron ore between July and December 2012, all of which was sold and delivered to the market." Rio Tinto PLC and Vale declined to comment. Fortescue said it was a price follower, as opposed to having the clout to help set prices.

http://www.chinamining.org/News/2013-03-26/1364266169d60868.html

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