China steel growth set to stall

There will be little growth in Chinese steel production this year, the head of a steel industry group said on Thursday, in a further sign that the global economic crisis is hurting the Chinese economy. Expectations had been for a 5-10 per cent rise.

Separately, Aluminum Corp of China (Chalco) said it would cut annual aluminium production capacity by about 18 per cent because of declining prices and weakened demand.

Shan Shanghua, secretary-general of the China Iron and Steel Association, said he expected China to produce about 500m tonnes of steel this year, up only 10m tonnes from last year and short of earlier forecasts of 520m-550m tonnes.

The Chinese steel industry has been hit hard by the global?crisis,?which?has depressed export demand and has begun to depress domestic demand.

The price of hot rolled steel, a benchmark for the industry, has fallen from a high of $822 a tonne in August to $750 this week.

Steel mills have cut production by up to 20 per cent in response to weak demand from Chinese carmakers and the construction industry.

Growth in Chinese car sales has been much slower than expected so far this year, and sales could be flat next year, after several years of double-digit growth.

Recent government moves to stimulate the local property market, which has suffered its own downturn in recent months, were expected to take at least six months to feed through into increased steel demand from construction, industry analysts said.

¡°The demand situation is appalling at the moment and it¡¯s going to stay that way until the end of the year,¡± Graeme Train, manager of Asian research for consultancy Steel Business Briefing in Shanghai, said.

He forecast Chinese crude steel production of 505m-510m tonnes this year.

In previous downturns Chinese steelmakers could turn to export markets.

¡°This year that¡¯s not available to them. If anything, demand for exports is falling and looks set to possibly collapse by the end of the year,¡± Mr Train said, predicting that 2009 Chinese steel production would fall below this year¡¯s levels.

Mr Shan said Chinese mills had already begun contacting iron ore suppliers ahead of the 2009 price negotiations, adding that they would seek a unified price from Brazilian, Australian and Indian iron ore companies and would seek to unify spot and contract prices.

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