STEEL GRIPS online - China's steel demand is far from spent

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China's steel demand is far from spent

Jun 22, 2011

Research by MEPS International Ltd suggests that the Chinese steel industry will end the year resurgent. Production in China has been rampant over the first half of 2011 but research shows that demand is far from spent. Following a summer slowdown, MEPS forecasts that crude steel output will rise by 7%, year on year, to 176 million tonnes in the final quarter.

MEPS highlights in its latest report “China Steel Insight” that booming demand from the construction industry, which has driven steel consumption to record levels, has been led by private housing projects. The government’s much trumpeted economic housing scheme has provided little impetus for steel demand so far this year. Official estimates suggest that construction is falling behind schedule. By the end of May work is reported to have commenced on only 30% of the 10 million economic housing units targeted to be started in 2011.

MEPS research suggests that the central government will be successful in accelerating the pace of construction of these projects but not until the final quarter. MEPS estimates that an additional 6 million tonnes of finished steel will be consumed by economic housing projects during the last three months of the year. This is a small proportion of total finished steel consumption. However, up to two thirds of this demand will be for rebar, a product in increasingly short supply in China.

Peter Fish, Managing Director of MEPS, comments, “Demand from economic housing projects will push Hot Rolled Coil and Rebar spot prices close to parity in the October to December period at RMB 4700/4800 per tonne (including tax). China has very little spare capacity for steel used in construction. The market is reliant on illegal, out-dated mills to meet demand for this material. The central government continues to discourage new investment in the supply of these products. Consequently the problem is likely to continue.”

MEPS