Untenable Production Cut
China is churning out more steel despite the slow down in its domestic demand. The country’s exports have increased by 20% in 2015 against previous year and is recorded at 112.4 MnT. This is enough to meet the steel demand of Japan and Germany for a year and still would leave 9 MnT in spare.
It is difficult to control such a huge level of exports in medium term. With the flat global demand, trade tensions between China and other countries have also increased. A curb in exports is attainable either voluntarily or by imposing anti-dumping duties by mature markets.
China is trying to control excess capacity by means of environmental considerations. Steel production is a major source of pollution in China and with increasing pollution, there is an urgent need to control steel production in the coming months.
Falling Raw Material Prices
Chinese iron ore imports have reached record high at 96.27 MnT in Dec’15 making a total import of 953.36 MnT in 2015. The average iron ore prices in global market have reduced by 57% in 2015.
It is reported by Goldman Sachs Group that prices of iron ore will remain under USD 40/MT for next three years as it will take 12-18 months for Chinese iron ore producers to squeeze the competition before they will consider reducing output to balance demand and hence raise prices.
Another key raw material, coking coal prices have also registered a fall of 30-40% in 2015 and with weak global demand, the price scenario is likely to remain the same. Thus with falling input costs, increase in steel prices in already oversupplied steel market is unlikely during 2016.
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