China stoking steel oversupply fears

Well, from one good news story to another …

WSJ/CNN Money: Industry worries prices will fall as the country’s demand slows, steel making capacity rises: WSJ.

China’s voracious demand for steel has tempered of late, stoking fears of industry oversupply and falling prices as China becomes a net exporter of steel, its domestic demand slows down and global steel making capacity rises, a newspaper reported Thursday.

Steel demand in the world’s most populous country has increased only by about 5 percent a month recently, compared with average increases of 26 percent a month in 2002, 2003 and early this year, according to the Wall Street Journal.

The paper also reported that steel production in China is expected to rise 22 percent in 2004 and another 14 percent in 2005. Last month the country posted net steel exports after being a net importer the year before.

These shifts in the Chinese economy, and others in the future, might force the country to dump excess supply on the worldwide market, sending steel prices down as quickly as they have soared.

This is of course good news for metal stampers who are required to give back 5% per year or some other such formula, but the steel companies cannot be looking at this with a great deal of joy.

Even for metal stampers this isn’t great. The disparity in steel prices between North American steel and the world price of steel is currently so high that North American stampers cannot compete with many overseas competitors. The disparity is likely to get worse if China starts flooding the market with cheap steel. So overcapacity may not be good news for anyone.

Time will tell, I guess.

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