Only a few months ago, several analysts, some of them Beijing- and Shanghai-based, had predicted a slowdown in the Chinese economy with a corresponding decline in the country?s hunger for steel. The net impact on the demand for iron ore and coking coal was to be reflected in their falling prices and, accordingly, some mega investment proposals involving mining exploration and creation of fresh capacities in Mongolia, South Africa, Australia and Indonesia were deferred. It was strongly felt by the previous regime in China that steadfast pursuance of growth-oriented policies has widened income disparity in the country as the fruits of development were confined to regional pockets, something that has also led to excess capacities, massive inventories, unpaid loans for banks and an inevitable compromise with the environment in certain sectors, such as steel. The projected GDP for China, at 8.4%, is based on a partial cooling off of the real estate market on account of the recently imposed regulations.
The new regime?s reiteration of balanced economic growth in China would imply that fixed asset investment will continue to have a major role. During the first two months of the current year, crude steel production has risen by 10.6%, the fastest among all countries. China imported 122 million tonne of iron ore and 12.5 million tonne of coking coal during the same period. The country?s steel exports stand at 9.2 million tonne, a shade higher than the previous year. Its imports stand at 2 million tonne. China?s trade balance of $214bn at the end of 2012 shows a consistent rise over the last year. Industrial growth in February at 9.9% is one of the highest in the world.
If strong Chinese demand has propelled prices of iron ore and coking coal, as past years? experience tells us, a slowdown in the Chinese growth story is preferred by all those import-dependent countries, such as India, where domestic prices are sensitive to international prices. But the collapse of Chinese demand for steel would also imply a major push for steel exports by the country. And if China vigorously focuses on exports, the competition posed to the CIS countries, Turkey, Japan, Indonesia and Vietnam would be rather stiff, even as a host of other countries, such as the US, Italy, France, India and Indonesia, remain busy with anti-dumping and countervailing duty investigations against growing imports
from China.
There is a lot of debate if Chinese steel production has already reached its peak. Analysts from Baosteel feel that the point of inflexion for China would be reached in 2017-18, when China?s growth in steel production and consumption stabilises. By then, would the rest of the world be less dependent on what happens to China?
The author is DG, Institute of Steel Growth and Development. The views expressed are personal