Steel production in China will shrink this year as consumption has peaked, according to the China & Iron Steel Association. Iron ore miners’ shares declined, with Rio Tinto Group posting the longest losing run since December.
Output will contract to an estimated 814 million metric tons in 2015 from 823 million tons last year, Deputy Secretary-General Li Xinchuang said at an iron ore conference in Perth, Australia, on Wednesday. The association is funded by China’s major steelmakers and is the only nationwide industry body.
Squeezed by a housing slump and industrial overcapacity, China grew at the weakest pace since 1990 last year and is set to slow further in 2015. Peak steel arrives in the country this year, according to Morgan Stanley, which forecast that supply and demand will decline after 2015 as the economy matures. China accounts for about half of global steel production and is the world’s biggest buyer of seaborne iron ore.
“China’s crude-steel production will decline,” said Li. “Why? Two reasons: consumption that has passed the peak and exports cannot maintain high increases. I’m sure steel production will decrease.”
Declining steel production may hurt iron ore prices that collapsed into a bear market last year after the world’s biggest suppliers including Rio Tinto, Vale SA and BHP Billiton Ltd. boosted low-cost output and spurred a global glut.
Rio shares fell for an eighth day in London, the longest run since Dec. 15, to trade 0.2 percent lower at 2,823.50 pence at 11:50 a.m., while BHP lost 1.4 percent to 1,451 pence, dropping for a fourth straight day. In Sydney, Fortescue Metals Group Ltd. slumped 3.5 percent to the lowest level since 2009.
UBS’s View
Steel output in China will probably shrink this year for the first time since the early 1980s, according to UBS Group AG. Production is seen dropping 0.5 percent in 2015 on a slowdown in the property industry and greater enforcement of environmental safeguards, the bank said in a report on Tuesday.
China’s steel output is seen flat at best, Cliffs Natural Resources Inc. Chairman Lourenco Goncalves said at the conference. Production in the country is already at the “peak range,” John Gao, an analyst at MySteel, told the event.
The outlook from the association’s Li differs from forecasts from iron ore miners including Rio Tinto and BHP. China’s output will reach 1 billion to 1.1 billion tons by 2025, Jimmy Wilson, head of BHP’s iron ore business, said at a briefing in Perth on Tuesday. Steel production in China will expand through to 2030, Alan Smith, Rio’s Asia president for iron ore, told a conference in Beijing last month.
Ore with 62 percent content at Qingdao fell 0.9 percent to $57.61 a dry metric ton on Wednesday, declining for a seventh day, according to daily pricing data from Metal Bulletin Ltd. That’s the lowest since at least May 2009, when Metal Bulletin started compiling weekly prices. It’s 19 percent lower this year.
“Steel prices have fallen continuously due to overcapacity and fierce competition,” Li told the conference. “Many steel companies lose money and are experiencing hard times. Some have been closed, and more will be closing in future.”