China steel demand drops for first time in 14 years due to slowing economy
Mainland steel consumption dropped this year for the first time since at least 2000 because of slower economic growth, leading to a surplus of iron ore in the country.
Mainland steel consumption dropped this year for the first time since at least 2000 because of slower economic growth, leading to a surplus of iron ore in the country and a more than 40 per cent plunge in prices of the steelmaking raw material.
But top global miners like Vale and Rio Tinto, which have invested billions of dollars to increase output to sell more iron ore to the mainland, are still convinced demand has yet to peak with an urbanisation drive expected to last at least another decade.
Apparent crude steel consumption on the mainland fell 1.9 per cent year on year to 61.9 million tonnes in August, said Wang Xiaoqi, vice-chairman of the China Iron and Steel Association.
With the mainland now focusing growth on consumption and away from investment that has fuelled years of massive expansion in its steel sector, Wang said: "From now, domestic steel output and consumption won't rise along with economic growth."
Mainland steel consumption dropped 0.3 per cent to 500 million tonnes in the first eight months of the year, he said.
The decline in consumption this year marks the first time demand has shrunk since 2000, said CLSA commodity strategist Ian Roper.
Iron ore fell below US$80 a tonne this week for the first time since September 2009 and is on track for its biggest-ever annual drop amid a deep supply glut stoked by top, low-cost producers including Rio and Vale.
Mainland crude steel output is likely to hit 826 million tonnes for the year, said Wang, up 6 per cent from the government's official 2013 output figure but only slightly above the 822 million tonnes cited in August by leading steelmaker Baoshan Iron and Steel.
Amid slower steel consumption, iron ore supply exceeded demand on the mainland by 81 million tonnes over January to August, Wang said.
But Claudio Alves, global director of iron ore marketing and sales at Vale, said the "cycle of development and urbanisation in China will continue for another 10 years", suggesting mainland iron ore demand will remain strong.
Rio Tinto agrees, saying long-term fundamentals remain strong. "Rio Tinto's assessment remains that China will reach around one billion tonnes of crude steel demand by 2030," said Alan Smith, Asia president for Rio Tinto Iron Ore.
But Baosteel president Dai Zhihao said current low iron ore prices are here to stay, reiterating that mainland steel production will peak at 800 million to 900 million tonnes around 2018.
"I personally feel this fall represents a new status quo," Dai said.
