Weakening steel demand in China will improve prices within 2018

By Staff Writer

Apr 11, 2016 06:37 AM EDT

The steel industry of China is expected to shrink rapidly, stopping global price fall. The steel industry across the world is fighting the problem of over production as demand weakens in China. In 2015, steel prices slumped owing to the oversupply of the commodity, hurting the profits of steelmakers globally. As a result of this, Tata Steel in India is attempting to sell its UK division, threatening thousands of workforce in the unit.

Managing partner of World Steel Dynamics Peter Marcus said that there will be a shortage in steel production in 2018 when demand picks up in China, the global economy develops resulting in economic protection. The price collapse that happened in the middle of 2015 was a one-time event, which will not be repeated, he added.

According to Marcus, reorganization of the steel industry in China will reduce output by 18% to 705 million tons from the previous year within 2018, aiding exports reduction. However, Marcus did not provide a particular outlook for export volumes that reached 110 million tons in 2015, or over the annual output in Japan.

Meanwhile, China's coil export in December fell as weak as $260 per ton, down from $1,120 in June 2008, Bloomberg quoted Beijing Antaike Information Development. But coil prices recovered to $360 on April 1 following a vast bounce in commodities markets.

Prices are expected to continue in a low tide, with a little streak for recovery ahead of 2018 as the global industry copes with output glut, according to Marcus. He said that hot-rolled coil prices across the world could rise as high as $150 per ton within 2018. The Chinese government wants to trim the country's steel capacity by as high as 150 million tons in the next five years. But, Marcus expects the capacity to drop by 215 million tons to 850 million tons by 2018 end.

Mario Longhi, US Steel's chief has blamed UK and EU for not responding to China's abandoning of cheap steel into global markets. He said that UK had not learned from Tata Steel's decision to sell its UK arm and close them if it fails to find a suitor. Mario told Financial Times, "The Europeans have been more negligent than anybody. For them to be . . . considering granting as a fact market economy status to China where you have all the evidence in place that denies them that right it's just ridiculous."

According to The Economic Times, the UK has urged China to fasten its efforts to reduce steel output, minimizing hurdles in nations like Britain. Philip Hammond, the foreign secretary of Britain, said that the UK is more concerned about the prospect of steel production at Port Talbot and other production spots across the nation.

The global steel industry has been suffering from price fall over the recent period amid overproduction from China. Poor demand coupled with oversupply has impacted the steel prices, similar to crude prices.

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