Analysis: China steel output growth could halve in 2012

Analysis: China steel output growth could halve in 2012.

China's sputtering construction projects and a sudden drop in steel prices could halve 2012 output growth in the world's top producer of the metal, after major steelmakers defied credit tightening and wafer-thin margins to churn out record volumes this year. While the central bank's battle against inflation has choked off funding for new buildings, roads and railways, talk of Beijing adopting an easing monetary cycle or lifting property curbs is premature, analysts say, although authorities could seize the chance to force consolidation of the sector.

"Steel demand is very poor," said Judy Zhu, an analyst with Stanchart Bank in Shanghai.
"There is hardly any restocking going on because buyers are cash strapped and there are growing worries of a further slowdown in the property sector.
"I don't expect Beijing to start easing until early next year, which means it would be difficult for steel demand to improve markedly."

UBS analysts said steel output growth in China could slacken to just 4.4 percent for a total 726 million tonnes in 2012, marking the weakest level since 2008 and down sharply from industry estimates of 11 percent this year.
Such a development, compared with some analysts' previous expectations for growth of 7 percent to 8 percent, would cut previous output forecasts by about 20 million tonnes, which would in turn cut iron ore consumption by at least 35 million tonnes and coking coal by 13 million tonnes.
The impact of such a slowdown could be far reaching.
It would mean a combined loss of some $8 billion in sales of iron ore and coking coal for miners such as the world's top three iron ore producers Vale SA (VALE5.SA), Rio Tinto Ltd (RIO.AX)(RIO.L) and BHP Billiton Ltd (BHP.AX)(BLT.L).
It could stiffen headwinds for economies such as Australia and Brazil, key producers of steel-making raw material iron ore, whose fortunes are closely tied to China.

Evidence of a slowdown is mounting. The price of rebar used by the construction sector has tumbled 20 percent since August to a record low, and inventories have also risen for two months as end users slowed orders and daily steel production has already begun to ease.