China’s crude steel production grew at the slowest pace on record as domestic demand weakened and the country exported the most ever.
Output in the world’s largest steelmaker expanded by 0.9 percent in 2014, compared with 7.5 percent the previous year, according to data released by the National Bureau of Statistics in Beijing on Tuesday. While the country produced a record 822.7 million metric tons last year, it was the lowest growth in data going back 24 years.
Steel output expanded more than 12-fold as China’s economy added 61.8 trillion yuan ($9.9 trillion) since 1990, according to statistics bureau data. The slowest economic growth since that year led to a record slump in prices in 2014, prompting factories to restrain expansion amid an annual production surplus that Sanford C. Bernstein & Co. estimates at 200 million tons.
“You’ve got an industry in overcapacity with utilization rates that are not providing the producers with any pricing power,” Daniel Kang, an analyst at JPMorgan Chase & Co. in Hong Kong, said before the data was released. “We’re expecting growth to be fairly minimal.”
Steelmakers were unwilling to cut jobs and close plants as demand from the construction sector dropped, pushing exports up 51 percent to the most ever. The price of steel reinforcement-bar fell a record 27 percent last year on the Shanghai Futures Exchange. China’s economy expanded at 7.4 percent in 2014, the statistics bureau said today.
Export Surge
Output last year was lowest in November, when Hebei and Shandong provinces shut production to reduce pollution before and during the Asia Pacific Economic Cooperation in neighboring Beijing. December output rose for the first time in four months to 68.09 million tons.
China’s steel product exports surged to 93.78 million tons in 2014 as producers looked overseas to sell surplus stockpiles, according to customs data. Shipments are forecast to fall this year after the government canceled tax rebates for alloys containing the chemical element boron, which accounted for about 30 percent of the country’s outbound shipments in 2014.
Domestic demand fell 0.8 percent last year, the first contraction since the 1990s, Bernstein said in a report on Jan. 19. Floor space under construction for new buildings rose 9.2 percent last year, the slowest pace on record, and contracted for housing by 11 percent, according to NBS data. The measures are used as a proxy for building-materials demand.
No Reason
China’s steel overcapacity may start gradually easing this year as a result of fewer additions and elimination of mills that fail to meet environmental standards, according to Bloomberg Intelligence.
“Unless there’s better consumption and better steel prices, there’s no particular reason to keep growing crude steel production,” said Vanessa Lau, a senior research analyst at Bernstein in Hong Kong.
Iron ore, a feedstock for blast furnaces, slumped 47 percent last year to $71.26 a dry metric ton. Even with falling feedstock costs, more than 20 percent of the country’s steelmakers operated at a loss last year and the average profit margin was 2 percent, the China Iron & Steel Association said on its website Jan. 9.