Chinese steel output forecast to be flat

Chinese steel production is likely to be flat this year, rather than rising 5-10 per cent as expected, the head of a steel industry group said, a further sign that the global economic crisis is hurting the Chinese economy.

Aluminum Corp of China (Chalco) yesterday also said it would cut annual aluminium production capacity by about 18 per cent due to declining prices and weakened 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 a tonne this week.

Shan Shanghua, Secretary General of the China Iron & Steel Association, said he expected China to produce about 500m tonnes of steel this year, up 10m tonnes from last year and short of forecasts for 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 as well.

Leading 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 this year, and sales could be flat next year, after several years of double digit growth.

Government moves to stimulate the local property market, which has suffered its own downturn in recent months, are 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," said Graeme Train, manager of Asian research for Steel Business Briefing, the consultancy, in Shanghai. He forecasts 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. He predicted 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 miners and would also seek to unify spot and contract prices.

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