Business Headlines

World’s Top Steelmaker Says Output Waning as Demand Stumbles

©2015 Bloomberg News
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(Bloomberg) — Mills in the world’s biggest steelmaker are churning out less even as economy shows signs of stabilizing.

Crude-steel production in China shrank 1.3 percent to 410 million metric tons in the first half compared with the same period of 2014, according to the National Bureau of Statistics on Wednesday. June’s output fell 0.8 percent from a year ago.

After decades of rapid growth spurred an unprecedented expansion in steel supply, output is now dropping as mills in China contend with a property-led slowdown, overcapacity and losses. The country’s producers are the linchpin of the global industry, accounting for about half of supply, and the slowdown is hurting iron ore demand. Growth in Asia’s largest economy held at 7 percent in the second quarter, beating expectations.

“The slowdown in construction and real estate means that the Chinese economy is now less dependent on steel production than it was,” Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch Ratings Ltd., said by phone from Hong Kong.

Steel reinforcement bar retreated 23 percent this year to 2,130 yuan ($343) a ton on Tuesday, according to Beijing Antaike Information. Last week, the benchmark fell to the lowest since at least 2003. Iron with 62 percent content delivered to Qingdao sank to $44.59 a ton on July 8, the lowest since at least 2009.

Construction is slumping as policy makers seek to shift the economy away from investment-led growth toward consumption. The amount of land purchased for real-estate development fell 34 percent in the first six months, official figures showed. About 35 percent of China’s steel demand is related to housing and construction, according to Goldman Sachs Group Inc.

‘Still Pressure’

“There’s still pressure on the steel industry,” Ma Yan, an analyst at Nanhua Futures Co. in Hangzhou, said before the data was released. “The speed with which the demand is decreasing still outpaces the pace of output cuts.”

Iron ore imports by China, the world’s largest buyer, shrank 0.9 percent to 452.9 million tons in the first half, customs figures showed on Monday. Prices that rose as China expanded are falling to a so-called new normal level and will remain there through 2020, Rio Tinto Group said on Monday.
The decline is hurting smaller producers. Mount Gibson Iron Ltd. on Wednesday described the impact of the drop as devastating, and the Perth, Western Australia-based company said it was considering the early closure of its second mine.

Mills in the China Iron & Steel Association reported losses of 16.5 billion yuan in the first five months as demand stalled, Chairman Zhang Guangning said Thursday last week. Steel output in China probably peaked in 2014, according to the association.

Output of steel products rose 2 percent to 559 million tons in the first six months from a year earlier, the statistics bureau said Wednesday. Given the domestic slowdown, mills have been increasing overseas sales, which climbed 28 percent to 52.4 million tons in the first half, customs data on Monday showed.

–With assistance from David Stringer in Melbourne and Zhang Dingmin in Beijing.

To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at frong2@bloomberg.net To contact the editors responsible for this story: Jake Lloyd-Smith at jlloydsmith@bloomberg.net Thomas Kutty Abraham

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Men of Value Contributor

Articles by various contributors to Men of Value, an online magazine for American men who value our Judeo-Christian values of faith, family, and freedom.

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