China reaching “peak steel” isn’t all bad news – by Clyde Russell (Reuters U.S. – February 4, 2015)

Feb 4 (Reuters) – A term gaining currency among China commodity watchers is “peak steel”, something that sounds ominous, especially to iron ore and metallurgical coal miners. The increasing market consensus is that China is at, or close to, reaching the maximum level of steel output and demand.

If this is the case, it means China’s steel consumption will peak at levels well below what many in the market had expected only a few short years ago. China produced a record 822.7 million tonnes of steel in 2014, roughly half of global output, according to data from the National Bureau of Statistics.

However, this was only 0.9 percent higher than the previous year, representing the slowest annual growth rate in 33 years. Even this modest increase in output was only achieved on the back of a surge in exports of steel products, which jumped 50.5 percent in 2014 to 79.35 million tonnes.

Apparent steel demand in China dropped 3.4 percent to 738 million tonnes, according to the China Iron and Steel Association (CISA).

These figures suggest that the “peak steel” proponents are probably on the right track, especially since a strong rebound in steel demand in 2015 is viewed as unlikely, given expectations of economic growth of around 7 percent and ongoing problems of oversupply in residential housing.

It’s the slowing of economic growth, and the changing nature of that growth from export-led manufacturing and infrastructure to consumer-led consumption, that is the foundation block of most views that China is near peak steel.

To this can be added pressure to cut pollution, which has already resulted in some steel mills cutting output.

Pressure to limit the use of coal will likely result in further idling of steel capacity, especially in Hebei province adjacent to Beijing.

The main consumers of steel in China are, in order, property, machinery, infrastructure, automobiles and appliances, with property being bigger than the other four combined, according to a Jan. 16 research by Swiss bank Julius Baer.

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