Despite years of effort, China’s latest steel production data shows that the country has completely failed cool down the sector.
WSJ: In the last three weeks, China’s top policy-making bodies — the State Council and the National Development and Reform Commission — have singled out overcapacity in the steel sector as a top reform priority, intensifying a campaign that has dragged on fruitlessly for years.
But directives have proven difficult to enforce on the ground, and steel mills have continued to pump out more product, racking up a record 52.3 million tons of crude steel output for August.
Smaller steel mills have been reluctant to curb production and have contributed more to the rampant output than their larger, state-owned counterparts, analysts say.
With an annual capacity of around 660 million tons, China is expected to churn out some 601 million tons of steel this year, according to Shan Shanghua, secretary-general of the China Iron and Steel Association. Meanwhile, demand is projected at around 526 million tons, according to CISA data.
Further compounding the supply/demand gap described above is the fact that much of the demand could be fleeting as well, should construction slow.
Depending on which numbers you use, China’s steel consumption could grow by 26% this year after low single digit growth in 2008. Given that this year has been a rather peculiar period of growth for the Chinese economy, which many fear has been fuelled by overly stimulative policy, it wouldn’t be far-fetched to imagine all of this year’s steel consumption growth being reversed should things start to slow down to just slightly more normal levels.
Thus it’s scary to imagine what kind of yawning chasm could easily open up between steel production and demand in the future. Get ready for the crunch, it’s only a matter of time.