Steel Prices Are Stabilizing Again; Chinese Consumption Could Provide Further Support

5 July 2016

Steel prices have had a fantastic rally since the beginning of 2016, buoyed by falling production and increasing demand. China, the world’s largest producer and consumer, is the key player in setting steel prices. The recent rally in prices was also the result of growth in Chinese steel consumption.

After a plunge in the Chinese economy, the country’s stimulus measures have helped in streamlining the economic and industrial activities. After anti-dumping pleas and higher import duties from European and American consumers on Chinese steel, China promised to cut its production by 150 mmt over the next couple of years.

Based on the World Steel Association, China has produced almost 70.5 million metric tons of steel in the month of May, up 1.8% from the same period of last year. Though Chinese steel production continues to grow, the country’s demand looks even stronger than the growth in production.

In May, the globe’s largest consumer exported 9.4 mmt of steel, which represented a growth of 2.3% over the same period last year. Similarly, the country’s exports have increased almost 6.4% since the start of this year. However, Goldman Sachs predicted Chinese steel consumption would decline in coming years as the country has decided to move its economy away from investments.

Aside from China, the world’s other large producers have been struggling to sustain their production levels over the last couple of quarters, thanks to low prices in comparison with the cost of production. Several big US and European companies have suspended their production amid a liquidity crisis.

For example, US steel posted historical losses in the last year, while Tata steel seeks to close its operations due to lower pricing environment. Falling supplies and increasing Chinese consumption has stabilized steel prices since the start of this year. Steel prices are likely to stabilize further in coming months, as the global economic situation has been gradually stabilizing after a surge in crude prices and industrial activities.

 

Source : economiccalendar.com