Chinese Dragon's furnaces continue to roar
Chinese Dragon's furnaces continue to roar
China will account for almost a third of the total world production of steel in 2007, and consume nearly all of its additional output, according to a special report included in the Global Sectors Outlook (December, 2006) from Euler Hermes, the world's largest credit insurance group and part of Allianz. Indeed even with its increased capacity, China will still need to actually import steel in order to keep up with demand.
World steel production is headed for a new record of 1.22 billion tonnes in 2006 (up by 7.7 per cent on 2005) confirming average annual growth of more than 6 per cent since 2000. Production looks likely to keep growing this year by 4.6 per cent despite the slowdown in world growth affecting the whole of the industry.
Chinese output should increase by 10 per cent in 2007 – three times more than its nearest rival, Japan. Main end- user markets for Chinese steel comprise construction (55 per cent), capital goods (12 per cent), automobiles (5 per cent) and household appliances (2 per cent).
Brazil, Russia and India, who together with China make up the BRIC alliance,will also increase steel production in 2007, helped by a modernisation of the production apparatus, cheap labour, and access to natural resources including iron ore, essential to the good running of their blast furnaces for cast iron,for which they account for 65 per cent of world production.
“The exponential growth in steel prices has not resulted from a traditional imbalance between demand and supply, but rather from the explosion in upstream raw material prices such as those for iron ore and scrap,”explains Philippe Brossard, Head of research for Euler Hermes SFAC.
“China's voracious appetite for commodities helped to tighten the market: on its own the country will this year account for more than 40 per cent of world iron ore imports, mainly from Brazil and Australia. Even so, a lull in steel prices seems likely in 2007, with prices slowing from the second half of 2007 in line with the slowing of the world economy.” Steel sector forecasts are founded upon the microeconomic expertise of Euler Hermes Group underwriters and analysts who closely monitor risk in companies worldwide through its network of 30 local subsidiaries.
