Stabilizing forces set to prop up the steel sector

Industry under pressure from overcapacity and environmental protection requirements, but companies will also have new opportunities, Du Juan reports

China's steel industry will face both challenges and opportunities this year as most of the provinces have adjusted their GDP growth target to a lower level.

Steel sector still facing profitability problems

After the central government decided not to evaluate local government's performances based on GDP growth, about half of the provinces cut their 2014 GDP growth target to lower than 10 percent for slower but reasonable economic development.

"As a consequence of the lower GDP growth targets, domestic steel consumption will be weakened this year. Meanwhile, the companies don't have to keep production up under pressure from local governments' administrative intervention," said Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute.

Hebei, Jiangsu and Shandong provinces, all big steel producers, cut their 2014 GDP growth rate by 0.6 to 1 percentage point, which will affect downstream steel demand and upstream production, he said.

Nationally, the domestic demand for steel products will grow slightly at 3.2 percent to 715 million metric tons this year, according to estimation of the institute.

The World Steel Association predicted in October that global steel demand would increase by 3.3 percent to 1.52 billion tons in 2014. Demand from emerging economies was expected to grow even more, by 3.8 percent.

China was the only one that will see a drop in steel demand growth in 2014.

"In fact, it's a good opportunity for China's steel companies to adjust their development mode and improve industrial structure when the growth for steel demand is slowing down," said Zhang Lin, a senior researcher at the Lange Steel Information Research Center.

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