China’s Steel Binge and Purge

The Motley Fool via Yahoo! News According to a report in this morning’s Wall Street Journal, the long-awaited reversal in the cyclical steel industry may have finally arrived. As Foolish readers are by now well aware, much of the cause of this and last years’ run-up in steel prices has originated outside U.S. shores — notably in China, whose roaring economy has been sucking up raw materials such as steel, oil, and coal like mad.

But with the commanders of China’s command economy declaring that it’s time to take the People’s Republican Foot off the economic gas pedal, that demand for raw materials is starting to temper in the land of the Great Wall. And with it, the deficit of raw materials and the shipping needed to transport them worldwide.

Result: The acceleration of Chinese demand for steel has dropped fivefold in the second half of this year, in comparison with 2002, 2003, and early 2004. In fact, the flow of steel has begun to reverse. Analysts point out that exports of steel from China are thought to have risen 22% since 2003, with China actually becoming a net exporter of steel in November; a further 14% increase in exports is predicted for 2005.

This news sparked the inevitable overreaction on Wall Street this morning […]

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