The world economic recovery has finally started taking new baby steps. This has lead to increase of demand of commodities. Infrastructure will be the prime reason for the recovery journey. This is the only sector which will lead the path of global economic recovery. When share views on infrastructure we get many sectors being clubbed to them. Banks, Cements, Steel, Capital Goods, Construction are the prime industries which are linked with infrastructure growth.
In this article I will bring out the future vision of steel sector. This sector is one of the most volatile among all the prime sectors. Steel is a sector which applies to every corner of our life. It’s not surrounded within a specified ambit. We all know that at the back of every economic growth there is a high presence of Steel. Its also a prime contributor to fiscal balance of an economy.
Chinese steel industry-wonderful performance and future control mechanism.
When Global Recession started its dance from November 2008 we find steel demand took a massive hit. But now the scenes are changed as global economy is coming out of the recession. As we all know that china is one of the largest producers of steel.
• In 2009 till date China’s steel output has reached 472 million tonnes in the first ten months of this year, as global output rose to 982 million in the same period, World Steel Association figures show. Analysts expect China’s year-end output to rise above 550 million tonnes.
• China’s auto and shipbuilding industries may consume 15 million tons and 13 million tons of steel respectively.
• According to the secretary general of China Iron & Steel Association, China apparent steel consumption is predicted to rise by 120 million tonnes or 26% this year given the fast increasing steel productions, particular those of small and medium size mills.
This was all about the consumption and production of Chinese steel, where we find a huge pull up from the recession times and also it’s never ending journey of growth. Among all these we should also account that china is also running at over capacity bubble too in steel production which might shake the tomb of china steel. This overcapacity have also lead to growth of export and as well as antidumping.
• China has made a production of 472 million tones of steel out of which domestic consumption accounts 120 million tones.
• China steel export tumbled reflecting the dwindling global demand, with the net export of crude steel expected to hit zero, sharply compared with 47 million tonnes in 2008.
• Total capacity in China’s steel industry hit 660 million tons by the end of 2008.
• By October, excess capacity in the sector had reached 200 million tons with another 58 million tons under construction, according to MIIT figures released on Oct 27.
• Long products take more proportion of the total steel products, which accounts for 65.6% of the YoY increased 75.38 million tonnes of steel products during January to October.
• Profit of 70 steel mills slumped 70.67%YoY and sheet and plate businesses.
• The rising capacity was accompanied by expanding investment in those sectors. Investment in the sector grows by 3.8 % year-on-year in the first 10 months.
This excess over capacity production will open to two options.1) Break down of the over capacity which will lead to free fall in the global steel prices and 2) Merger and Acquisition in Chinese steel industry. The Chinese government is very much concerned about this rising bubble. The Industrial Coordination Division under the National Development and Reform Commission (NDRC), the country’s top economic planning body has said that along with NDRC would join with the MIIT and other government departments to strictly control overcapacity in some sectors.
The government document is expected to release soon some policies regarding industrial readjustment. Projects which are involving new capacity building or expansion in the steel industry would be refused approval and support by the government. If these steps are brought into shape then the rising bubble might consolidate and the save the economy from a major crisis.
In my next article you will find details about the future prospect of Indian steel industry. I have broken it since I want my readers to have a clear concept about the sector in gamut.
Author:- Indranil Sen Gupta,
Financial, Economic Writer and Research Analyst