Beijing’s renewed emphasis on infrastructure investment will help boost industrial metals demand this year but the recent price rally has gone ahead of the fundamentals of an industry that needs to go through consolidation and excess capacity curtailment, according to analysts. SCMP, March 14 Let’s allow the pictures to do the talking about excess capacity and then let’s see how much talk we need of curtailment rather than run and hide. Here is the stunning stat for the day. At the peak of its cement production in 2014, China turned out more cement in just two years than the United States had produced in the previous century. As the first chart shows, the trend finally topped out last year but it still indicates almost 30 times as much cement production in China as in the US, a much larger economy. Is this huge volume of cement really needed? Is this sustainable? There is certainly an argument for more cement production in China than in the US, which has largely built its cities and its transport infrastructure. China is still in the process of doing so. Its cement requirements are thus proportionately much greater. True, but 30 times as great with as much cement production in two years as the US recorded in 100 years? That’s pushing things. And while economic growth in China is faster than in the US, much of it represents just this pouring of cement. Fixed capital formation accounts for 45 per cent of gross domestic product, about twice the average of the rest of Asia, and higher multiples yet than the rest of the world. This sort of excess crashes if demand turns sour. And it could take a lot more with it than just cement and steel plants The story is told in many more sectors than just cement. The second chart shows you that China’s steel production is topping out but is still running at five times the rate of all 28 countries in the European Union combined and almost 10 times steel production in the US. This steel is still being used but there are reasons to doubt the continued demand. Car production last year of 12 million units, for instance, was three times the equivalent of domestic production in the US. Yes, I know Americans are importing ever more cars as they begin to share the rest of the world’s doubts about their own Chevrolets and Chryslers and, yes, car ownership ratios are still much higher in the US than in China, but three times as much car production in China as in the US still has a feeling of unreality. China is not rich enough yet to afford so large a car market. Should a coming glut of second-hand cars now depress new car demand at the same time as a slump in shipbuilding and falling sales of construction steel, all of which are very much in the cards, these high levels of steel production will turn into so much rust. Cement production at 30 times that of the US and steel production at five times that of the EU are not just adjusted or curtailed or consolidated. This sort of excess crashes if demand turns sour. And it could take a lot more with it than just cement and steel plants.