MEPS International progresses its analysis on the Chinese steel industry and underlines an inconsistency between finished and crude steel manufacturing data.
It is highlighted that crude steel productivity has been under-reported by 10.6 Mt in the first half of 2011, but the motives of under-reporting differ from 2010.
The steel industry in China struggles to meet the increasing demand from social housing and infrastructure projects. Hence, previously shuttered and out-dated steel mills need to resume operations this year. These capacities are some of China’s most incompetent and high cost steel producers. The mills have been encouraged to resume production by strong profit margins because construction steel manufactures are struggling to meet the demand.
The government has planned to begin construction of 10 million economic housing units in 2011 but has limited investment in rod and bar steel mills. This has increased the price of material like rebar, equivalent to higher quality steel utilized in manufacturing. MEPS expects that the rebar price will reach an average of RMB 4700/t in 2011, which is 17% higher than 2010.
There is less chance for a considerable decrease in Chinese steel prices due to the current increase in market demand for construction steel. Hence, the steel market relies on productivity from illegal steel producers. Worldwide prices of iron ore will also continue to receive support from China. The demand for iron ore started to increase as the illegal mills have resumed production and this situation can be handled only by high cost iron ore producers.