[Watermoon]

April 18, 2012
Financial Times

China's steel production hit a record high in early April as construction demand picked up, allaying concerns over faltering demand for raw materials in the world's second-largest economy. China, which produces nearly half the world's steel, produced 2.03m tonnes of steel a day during the first 10 days in April, according to data from the China Iron and Steel Association, an industry association representing large-scale mills.

Beijing's year-old crackdown on property markets across the country has damped appetite for raw materials and demand growth for a range of commodities from iron ore to aluminium is expected to fall this year as a result, analysts say. China is the world's biggest user of many commodities and Chinese demand is crucial to the fortunes of global miners and trading houses such as BHP Billiton, Glencore and Rio Tinto.

Chinese steel demand has re-emerged in recent weeks thanks to increased construction activity, fitting a seasonal pattern as building projects start up at the end of winter. Commodity demand has picked up moderately across the board, with cement output rising 7.9 per cent in March from the previous year and electricity output growing 7.2 per cent during the same period.

“I wouldn't call it a strong demand recovery but things are improving at the margin,” said Ephrem Ravi, analyst at Barclays in Hong Kong. “Things are not going back to the 2010 go-go days.” The outlook from CISA's quarterly press conference on Wednesday was downbeat. “It's hard to see much growth in steel demand because fixed asset investment growth rates have fallen, investment patterns are changing and demand from major steel users is falling back,” said Zhang Changfu, vice-chairman of CISA. “There is not much support for a continued high level of steel output.” CISA has consistently offered a pessimistic outlook in its public pronouncements in an attempt to keep raw material prices lower for the industry. In the first quarter, a group of 80 steel mills monitored by CISA reported record losses of Rmb1bn ($159m) due to low steel prices and weak steel demand.

Amid the weak domestic market, China's steel exports soared 15.8 per cent in the first quarter, while imports 18.4 per cent. Iron ore prices have remained steady this year in the range of $135-$150 per tonne for benchmark 62 Fe grade ore, and have hovered near six-month highs this week. The price of iron ore closed at $151 per tonne on Wednesday, up almost 9 per cent from the start of the year. Ore inventories at Chinese ports are at very high levels relative to historic average, although they have started to fall in recent weeks.

[stalker]

China produces as much steel in two weeks as the US did in a year during WW2.

Truly, there is no stopping that juggernaut. Paying obeisance and tribute is the only way out now.

[Dave]

Chinese steel output, while enormously impressive, is equally symptomatic of Chinese economic problems.

In the first place Chinese steel demand is so high only because of endless, needless construction projects.

In the second place, China has very few large, efficient integrated steel mills. China has roughly 3,000 steel mills and 1,200 producers, of which only 70 are medium or large producers. The rest are small producers with small, inefficient blast furnaces which are idle much of the time. The top five producers (not mills) only account for around 30% of production, an incredibly low figure of concentration.

The Chinese steel industry is also loss-making, which is why for instance China's number four producer, Wuhan, is diversifying into...pig farming.

All of this in turn relates back to China's Leninist political structure and the incentives placed on municipal and regional officials to meet output and growth targets. The big producers are nearly all state-owned, and heads of SOEs in China are full ministers. Thus uneconomic production is carried out for primarily political reasons.

Compare this to the modernization approaches of Japan and South Korea during their high growth phases. They brought in foreign experts to construct the largest and most efficient integrated steel mills in the world, leading directly to the steel crisis in developed Western countries with smaller and less efficient mills. The Gwangyang Steel Works in South Korea is the largest and most efficient integrated mill in the world with annual output of 20m tons.

I am still bullish on China of course and expect them to become the world's foremost economic power in short course, but I say this to dampen Sino-triumphalism somewhat.

[stalker]

I was kinda being facetious there.

While the absolute magnitudes impressive, it's hard to imagine that all that concrete and steel is going to efficient uses. Besides, it's the post-industrial age now, and those things don't matter now as much as they once did.

China has a respectable, but far from leading-edge, presence in IT, pharmaceuticals, machine tools, finance, etc. (Though it's surging to the forefront in renewables, electric vehicles, and telecoms).

[Igor Antunov]

emand is so high only because of endless, needless construction projects

You have no idea what you're talking about.

Are they going to build 160 new mass transit systems with wood? Commercial demand in major cities is booming they can't keep up with skyscraperconstruction and people continue to stream into cities and peripheral regions. Highrises can't be built out of wood.

[Dr House]

You have no idea what you're talking about.

Are they going to build 160 new mass transit systems with wood? Commercial demand in major cities is booming they can't keep up with skyscraperconstruction and people continue to stream into cities and peripheral regions. Highrises can't be built out of wood.

http://www.time.com/time/photogallery/0 ... 92,00.html

[Igor Antunov]

The same one satellite town every time, out of hundreds they've built and continue to build, most of them way ahead of time in before the infrastructure is laid. Please try to do better. I bet the deserted shopping mall will show up next, one mall out of thousands they've built in the past 10 years.

Maybe one or 10 of 50 of the hundreds of transit systems, bridges, tunnels, rail links they build in the next 10 years will also be underused or empty. So?

[Dave]

You have no idea what you're talking about.

Coming from China Boy I'll take this as a compliment

[Franker65]

Steel is vitally important for China and the projects aren't needless. Very important for the future of the country. Especially high rises, high speed rail, etc. Very impressive figures all the same.

[Igor Antunov]

Recently three new steel mills were approved, totalling over $20 billion in value, as part of the speed up in approvals to help stimulate growth. Together, they will produce more steel than Australia produces in an entire year. That's on top of the mind boggling existing capacity.

Steel is like water, you just need that shit. Cement + Steel = nation building. If anybody hasn't noticed by now, China is still a developing country and will be for decades to come. It's the scale of required development that baffles people and warps their sense of perspective on why this much steely goodness must be acquired.

Overproduction leads to lower prices which benefits all those seeking to utilize this important resource. But don't be fooled, with the amount of work left to do, this steel will be consumed in time like everything else.

[Beren]

I don't understand this hype about steel production, is it 1912 or what?

One day China will produce as much steel as the rest of the world combined does, or even more, so what?

It's high tech and services that matters, not steel production.

It means no more than China's economy, along with society, is actually 100 years behind.

[Igor Antunov]

Did you miss the part where steel is required to build the office buildings those service professionals will work in? The machines that build the roads which those same service professionals will use to get to those buildings? THe bridges? The metros? The aircraft? The airports? The vehicles? etc. And high tech industry still requires steel. For the fabrication plants, the machines that build the chips, the machines that build the wind turbines which themselves are built from steel composites....etc

Besides, you don't conquer the world with lawyers and financial planners, you do it with war machines built from steel and steel composites. China has cornered rare metals and not so rare metals. It is poised to build lots of shiny, high tech things and is doing so.

China's share of world manufacturing capacity jumped from 8% in 2009, to 20% in 2010, surpassing the US 110 year lead. Manufacturing requires base metals, steel forming a copious component of that. I don't think you want to know where that capacity is now in 2012, or where it will be by 2020. What about 2030? 2050? You may poop your pants when a country that can spit out 200 supertankers woth of tonnage in 12 months today shifts to spitting out less harmless products built from steel at significantly expanded rates tomorrow.

[Beren]

Besides, you don't conquer the world with lawyers and financial planners, you do it with war machines built from steel.

Just like China, you're 100 years behind as well, what a coincidence?

My previous statement is true regarding war machines either. It's not steel that makes a good and efficient war machine, it's high tech equipment and services. Quantity is inferior to quality these times and this won't change any time soon, as a matter of fact this trend will be stronger and stronger.

[Igor Antunov]

No it won't. 200 F22 raptors are useless in the context of a global war involving 50,000 more realistic combat aircraft between great powers. Over engineering is a bane when times get critical, not a boon. And you're seriously suggesting that China is 100 years behind in war machines and consumer industries? The worlds most advanced high-tech consumer products are being manufactured in...China as we speak. And some of the largest research centres on earth are opening up on the outskirts of chinese cities with the sole purpose of providing competitive consumer devices, eg smartphones. The world leader in cutting edge consumer telecommunications supplies and manufacturing is...a chinese company based in shenzhen. Chances are your ill formed comments are being relayed to an unfortunate me through their equipment right now.

You're in for a wake up call. Stop injecting excuses to sideline historic achievements into the discussion.

[Beren]

I'm suggesting China is pretty much on the same socio-economic level as Germany was 100 years ago, basically. It doesn't mean they are on the same levels of technology though.

[Igor Antunov]

Well that's simply not true. Germans in 1912 didn't have access to instant communications, access to the same breadth of information and knowledge at their fingertips, the variety in foods, the extent of public education, hospitals, motorized vehicles, public transportation, job opportunities, technologies in general, as the average Chinese fellow does today, even on his $8,000/year salary.

[Beren]

You just don't understand or rather don't want to understand at all what I say.

China is in the same historic phase as Germany was in 1912.

[Igor Antunov]

You need to provide more detail. Eg. in terms of urbanization, infrastructure development, energy consumption per capita etc.

[Beren]

I suggest you presume I won't do that. However, China's about to be or she is the number one producer of steel in the world, just like Germany was, and she has a massively growing economy driven by heavy industry, like Germany had. China is autocratic as well as Germany was, and her strategic/geopolitic position (compared to the US) is very much similar to that of Germany (compared to the British Empire) in 1912. It must be noted though, as I mentioned before, steel production and heavy industry don't have the same kind of importance as they had 100 years ago, among others that's why China won't start a war for sure.

[Igor Antunov]

If germany had the 2nd largest territory by land area and a workforce of 800 million then maybe you could be making comparisons.