According to the factory policy for June bookings issued by Baosteel on Thursday, hot rolled steel plate is down 180 yuan ($29) per ton, while the price of cold rolled steel plate is down 150 yuan per ton, and the prices of most mid-thick products have been decreased by 200 yuan per ton. The price of mid-thick boat deck, however, stays the same.
By rights, many companies should have closed. Instead, they march on like zombies, China’s industrial undead.
China simply makes too much steel. The government estimates that China’s annual production is about 100 million tonnes more than it should be, a figure equal to the whole annual output of the industry in the United States.
Worse, China has far too many steel companies, more than 700 at last count. Add in iron companies and companies that roll or otherwise shape steel, and the total comes to more than 7,000. Despite repeated government attempts to force them to consolidate into fewer, bigger companies, most of them are still small and inefficient.
U.S. companies operating in China cited rising labor costs as the biggest risk to their business in the country for the first time, the 2013 China Business Climate Survey Report by the American Chamber of Commerce in China, AmCham China, showed.
Among 325 businesses surveyed, 47 percent said rising labor costs were their biggest risk, just above the number that said slowing economic growth in China was the major concern, the 2013 China Business Climate Survey Report said. More than a quarter of respondents said they had been the victim of data theft.
At $80 in September 2012, the iron ore price was at its lowest for the past 3 years. In 3 months, it surged to a current price around $150 a tonne, a 80% increase! But will it last? As it is often the case, China is the reason for the soaring price of the metal required to produce steel.
Chinese steelmakers absorb 60% of the global iron ore and are doing all they can to put their hands on any available cargo. It is true that at this time of year, China needs to import more since Chinese iron refining factories are typically idling in winter. China also imports more at the beginning of the year in order not suffer from supply disruptions in case the iron ore mines in Australia and Brazil get flooded as it is the beginning of the rainy season in these two countries. However, the current rush exceeds the usual seasonal increase.
Worldwide steel mills have reached a total estimated supply capacity of 1.8 billion tons, vs. a steel global demand of only 1.5 billion tons. Like Europe, China produces too much steel and it must restructure its industry.
Over the last 10 years, when steel production increased by 20% in Europe, it went up by 534% in China which now produces nearly half the world’s steel vs. 18% in 2001. The growth of the Chinese steel industry corresponds to the rapid development of the construction and infrastructure industry. Since 2008, the sector has also been heavily subsidized by the Chinese public banks.
Copper prices shot to their highest settlement in seven weeks as a batch of better-than-expected economic data from China had traders betting the world’s top industrial-metal consumer was turning the corner.
The news was enough to push up copper and other base metals in thin trade. Copper for March delivery, the most actively traded contract, rose 4.30 cents, or 1.2%, to settle at $3.7060 a pound on the Comex division of the New York Mercantile Exchange on Monday. This was the highest settlement since $3.7500 a pound set Oct. 18.
Copper‘s 2.9% rise this week reflected the market’s belief that “demand is going to be significantly improved in 2013,” said Bill O’Neill, a principal with commodities trading and consulting firm Logic Advisors.
The Chicago Business Barometer on Friday provided the latest indication of expanding industrial appetite in the U.S. by returning to growth mode, only two months after hitting its lowest level in three years.
The Chinese government continues to restructure and modernize its rare-earths industry. In a move that Beijing describes as “promoting orderly development”, it will provide direct subsidies to revive struggling rare-earths producers – a tacit acknowledgment of the strategic importance of the industry.
We mentioned in a previous article that prices of rare-earths minerals were succumbing to gravity. The explosion of the bubble, which saw the price of rare earths to increase six-fold between June 2010 and June 2011, has reduced prices to such a level that the two major Chinese producers have decided to temporarily stop their activity. Soaring prices led new projects and also motivated consuming industries to find alternatives. While consumer countries denounced China before the WTO for reducing its export quotas, Chinese sales of rare earths have fallen 30% in 2012 to 11 000 tonnes.
Copper prices have so far resisted the sharp fall in other metals prices since the outbreak of the crisis in the euro zone last year. But they are now below the $8,000 per tonne threshold. The copper cycle, which lasted for more than ten years now, might have reached its end.
Usually October is the beginning of a good period for purchases of copper in China, which typically continues throughout the fourth quarter. But this is not the case this year. Physical demand is low, to the point that the copper spot price in Chinese ports is less than the copper price in Shanghai, a very rare phenomenon. The Chinese industry – China represents 40% of world consumption – is not buying anymore and is just using its current copper stocks. In the USA, the recovery is very slow and in Europe, there is virtually no transaction…
The Worldsteel Association, which includes almost all of the global steel producers, released its October 2012 Short Range Outlook (SRO) for 2012 and 2013. Steel demand will slow down further in 2013: it will only be 2% in 2012, 3, 2% in 2013, against 6% over last year.
What strikes first is the slowdown in emerging countries: 3% additional steel consumption in 2012, a little more next year. It is far from the 10% growth a year for the last ten years. Among these countries, it’s in China that the growth will slow down most. Steel demand in China is expected to increase by 2.5% to 639.5 Mt in 2012 after 6.2% growth in 2011. In 2013, Government stimulus measures are likely to moderately improve the economic situation. This follows sluggish exports resulting from the global economic slowdown. Thus China’s apparent steel use is expected to rise by 3.1% and will reach 659.2 Mt in 2013.