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Weak demand, idle capacity dim steel market's recovery

(Xinhua)
Updated: 2009-02-24 23:46

Recovery for China's steel market was not yet in sight as declining exports and excessive production capacity continued to haunt the industry,said officials from the China Iron and Steel Association (CISA).

Workers transport steel wire rod coils at a steel market in Taiyuan, Shanxi province February 19, 2009. [Agencies]

Luo Bingsheng, CISA's executive deputy director, said at a conference on Monday that the rise in steel prices from December to February was not a sign of recovery. The country's steel market would remain subdued this year because of shrinking demand and huge capacity, he added.

CISA vice secretary general Qi Xiangdong put the rise in prices down to an increase in stockpiling.

"The financial crisis and the domestic economic slowdown resulted in contraction in both overseas and domestic markets", Luo said, noting China,the world largest producer and consumer, was facing many uncertainties.

The lingering financial crisis dragged the world economy into recession.

Many steel-consuming industries were seriously battered, especially construction, automobile and shipbuilding, which caused a steep drop in steel demand and therefore eroded China's steel exports, the Beijing Lange Steel Information Research Center said.

According to the General Administration of Customs, China exported 1.91 million tonnes of rolled steel last month, a decline of 2.22 million tonnes, or 53.8 percent, from the same month of 2008. The steel exports were also 1.26 million tonnes, or 39.7 percent, below the December level.

Xu Xiangchun, chief analyst with MySteel.com, said orders from importers had decreased sharply since the fourth quarter last year because of the dramatic international market contraction.

The prospect is not upbeat as the World Steel Association forecasted the global demand for steel would fall more than 10 percent in 2009 year on year. The Republic of Korea (ROK) and the US, the main importers of China's steel, would post declines of 9.5 percent and 10 percent in 2009, respectively. Japan's demand for the first quarter would slide 31.6 percent.

He added the yuan's appreciation also helped weaken the competitiveness of China's steel products. Additionally, there emerged growing concerns over trade protectionism worldwide.

The global economic turmoil also hurt China's economy, driving it down to a 9 percent growth for the whole year in 2008.

Luo said the domestic demand started to shrink in the second half of last year and would continue in the first quarter of this year as the financial crisis continued to spread.

"It is difficult for the steel industry to pick up until the domestic auto, shipbuilding and manufacturing sectors are revived", he added.

The country hammered out a four-trillion yuan stimulus plan in November to boost the economy. Luo expected the package to take effect on the steel industry in the middle of this year or the second half.

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