China,
the world’s biggest steel producer, is exporting at the highest level in two
years, exacerbating a global glut that may hurt competitors from ArcelorMittal (MT) to U.S. Steel
(X) Corp.
Monthly
shipments abroad rose to 8.7 percent of domestic
output last month, the highest proportion since July 2010. Chinese steel mills,
set for a record production in 2012, are ramping up overseas sales to avoid a
softer domestic market, where prices
for the commodity have dropped to a two-year low.
ArcelorMittal
of Luxembourg, which posted a 28 percent slump in
second-quarter profit on 25 July, and peers in developed markets are closing
plants amid slower economies and lower prices. In contrast, Chinese Premier Wen Jiabao
is overseeing a $23 billion investment in new mills to stimulate automaking and housing to reignite growth that fell in the
second quarter to the slowest in three years. The strategy already is sparking
unfair-trade charges by Western rivals.
Daily
steel production in China rebounded to 2 million metric tons in June, the second
highest following a record of 2.02 million tons set in April. Output, already
more than twice the combined daily production in Japan, the U.S., India and
Russia, may climb 5.4 percent to 720 million tons
this year, further outpacing domestic consumption.
Reducing
output would require idling plants and laying off
workers, Xu said. “All those things would incur
losses while competitors will come in and take up market share.”
ArcelorMittal,
the biggest producer, has shuttered or idled plants as
demand waned and Pittsburgh-based U.S. Steel sold its unprofitable Serbian
division this year. ThyssenKrupp AG (TKA), the largest in Germany,
said May 15 that “intense competition” will crimp a recovery in steel unit
earnings in the second half.
European
hot rolled steel has fallen about 6 percent in the
past 12 months to 517.50 euros a metric ton.
BlueScope
Steel Ltd. (BSL), Australia’s largest mill, and rival OneSteel Ltd. have reduced capacity as they battle a rising
Australian dollar and lower steel prices. India’s Tata Steel
Ltd. (TATA) reported a worse-than-expected 90 percent
drop in fourth-quarter profit, in May.
Moody’s
Investors Service put Posco (005490)’s a3 foreign
currency bond rating on review for a downgrade, citing sluggishness in the
regional steel industry. The South Korean company yesterday reported a 44 percent slide in second-quarter profit.
Profitability
at European blast furnace steel mills has plunged 23 percent
in the past year. The ratio of profit to sales at Japanese steel mills ended March 31
was -0.3, the lowest since 2009.
European
demand in a so-called normal market is 160 million tons compared with local
production capacity of 210 million tons, making shutdowns inevitable, industry
lobby group Eurofer said last month.
China’s
output capacity may have reached 900 million tons, including about 80 million
tons that started operation last year, the China Iron and Steel Association
said on its website April 28. Baosteel Group Corp.,
Wuhan Iron & Steel Group and Shougang Corp. won
government approval for new projects in May.
Steel
demand in China may reach 750 million tons in 2015 and peak at about 820
million tons during 2015-2020, the Ministry of Industry and Information
Technology said on its website.
“Exports
have become an important market because of mounting pressure on domestic
sales,” said Zhang Fenghua, an export manager of Hebei Iron & Steel Group, China’s biggest producer, by
phone. Hebei Steel sells flat products mainly to
South Korea, Southeast
Asia and South America,
he said.
China
is battling the slowest pace of growth since the depths of the global financial
crisis in 2009, as the European debt
crisis curbs exports and the nation’s own efforts to prevent a property
bubble. Premier Wen said July 8 the downward pressure on China’s economy is still
“relatively large” and the government will intensify fine-tuning of policies
and continue property controls, according to the official Xinhua News Agency.
The
nation’s manufacturing expanded at the weakest pace in seven months as overseas
orders dropped. The Purchasing
Managers’ Index fell to 50.2 in June from 50.4 in May, the National
Bureau of Statistics and China Federation of Logistics and Purchasing said July
1.
Countries
in South America and Asia have joined Europe and the U.S. in taking
anti-dumping actions against Chinese exports. Russia has already begun
protective measures and put up tax barriers to limit imports of steel products
with polymer color coating from China, according to
Anton Bazulev, a member of the managing committee of
the Russian Steel consortium, an industry group that represents Russia’s
largest steelmakers.
The
aggregate profit of Chinese steel industry fell 49 percent for the first five months this year from a year
ago, the National Development and Reform Commission said July 23. Thirty-four percent of the 80 Chinese steelmakers monitored by the
China Iron and Steel Association incurred losses in the first four months of
this year, the group said on its website.