Commodity Blog

Steel demand in China, the world’s largest user of the metal, may improve later this year as extra state spending kicks in, with more than 60 percent of mills losing money at present, the China Iron & Steel Association said.
“We are pinning our hopes on the government’s stimulus measures to revive domestic demand,” Vice Chairman Luo Bingsheng told reporters today in Beijing. “Hopefully the situation can improve in the second or third quarter.”
China is spending 4 trillion yuan ($585 billion) to stimulate the world’s third-largest economy and stave off the impact of the global recession, which has slashed exports. China’s cabinet on Jan. 14 approved guidelines to bolster the steel industry, including accelerated mergers and acquisitions.
“We haven’t seen obvious signs of demand recovering in the first quarter,” said Luo. The stimulus package will boost government spending on housing and transportation projects, such as upgrading railway links.
Still, Baoshan Iron & Steel Co., China’s second-biggest stainless steel producer, has said that the outlook has improved. Baoshan said on Feb. 16 that it was boosting stainless output as demand from some customers “is picking up.” The Shanghai-based company last month raised steel prices for March delivery.
‘Thin Profit’
“Only some privately owned steel mills may have begun to make thin profit due to lower production costs compared with state-run steelmakers,” said Qi Xiangdong, the association’s deputy secretary-general.
China’s steelmakers had an aggregate loss of 29.1 billion yuan in December after losing 12.8 billion yuan in November and 5.84 billion yuan in October, the China Business News said Feb. 20, citing Shan Shanghua, the association’s secretary-general.
Amid waning demand from builders and automakers, China had 660 million tons of steel-making capacity last year, about 160 million more than production of 500.5 million tons, the association said today. Crude steel output this year may be between 490 million and 500 million tons, Luo said.
The government may further adjust tax rebates on some steel products and remove so-called tolling, the association’s Qi said. Tolling refers to the tax-free import of goods that are processed for export.
China’s steel association represents the nation’s largest mills. The comments from Luo and Qi were made at a regular media briefing in Beijing.