The Chinese government is getting worried about striking the right balance on the markets as China’s steel prices are rising.
Even as the government seeks to find economic growth outside of heavy industry and manufacturing, China, the world’s largest steel producer, has been working to tackle overcapacity in the sector. China was selling its unwanted steel at lower prices on global markets, hurting producers elsewhere, is the longtime claim being made by the U.S. and Europe and the cutbacks also come amid such a market environment.
In efforts to tackle pollution and curb excess supply, the government announced plans to slash steel capacity by 50 million metric tons this year, in March. And the authorities worried about market volatility as the prospect of limited steel is pushing prices up, experts say. Costs for sectors like construction that use much of the alloy would get increased by the rising costs of steel as China is also the world’s top steel consumer, even though the higher prices translates to better profits for industry.
Especially in advance of a leadership shuffle due in the fall, managing market stability, controlling environmental pollution, rebalancing economic growth and tackling steel overcapacity has presented a tough situation for Beijing.
According to Reuters data, sitting presently at around 4,131 yuan and with the September 2017 contract is up 40 percent to date, steel rebar futures have rallied on the Shanghai Futures Exchange so far this year.
Nomura analysts wrote in a note that after Hebei province announced new measures to limit steel production to half of its capacity during the winter months, the price of hot-rolled coil, a key steel product, surged 5 percent even on Monday. In the first half of this year, Hebei accounted for nearly one-fourth of China’s total steel production.
According to Nomura, with China’s curbs estimated to reduce overall crude steel production by 5 to 10 percent, analysts and companies expect higher prices to stay as the cutbacks continue in the long run. Charles Bradford, metals analyst and president at Bradford Research said that after falling in July, China’s steel exports are likely to continue to dip.
“Output in China’s steel industry has sometimes been curtailed temporarily in order to tackle environmental problems, but we think the production cutbacks in the latest measures will be substantial compared to the other occasions,” wrote the Nomura analysts.
The industry was prompted to pull back on investment and jobs especially after China’s faltering economic growth triggered a rout in global commodities over a year ago, that’s good news for industry, when it comes to stronger earnings.
It expected India’s Tata Steel to see healthy profitability for the rest of the year, S&P Global said on Wednesday. A boost in export margins is also being seen by Japan’s steel industry. and in South Korea, which is a major steel export destination for China, its steel industry is poised to benefit with less Chinese steel coming in. South Korean firms have been in fierce competition with the Chinese.
(Adapted from CNBC)