The herd follows the trend

China is the “dominant bull” in the global steel business. This commanding position is evident again in 2005; Chinese apparent steel demand may rise almost 30% this year versus a drop of 2% in the rest of the world. Specifically, Chinese apparent steel product demand in 2005 may surge by a staggering 73 million tonnes, while that elsewhere in the world may fall by about 15 million tonnes.

Reflecting the stunning gain in apparent demand, Chinese steel production in 2005 will amount to about 336 million tonnes – including a peak annual rate in August 2005 of 359 million tonnes. In comparison, steel production was 272 million tonnes in 2004. And, output in 2000 was just 129 million tonnes; hence, the growth rate from 2000 to 2005 is 21% per year, compounded. Steel production has surged reflecting higher steel demand, much higher capacity, far fewer production restrictions this summer, higher exports, lower imports and, probably, a build-up of inventories in the system. This past summer, steel production was not suppressed, as in 2004, by shortfalls of electricity, coking coal, coke, rail cars and port capacity.

What are some of the possible ramifications of the 2005 Chinese steel production surge?

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