China May Ship 80% Less Steel Products as Orders Drop

By Helen Yuan

March 18 (Bloomberg) -- China may export 80 percent less steel products this year because of the global recession, leading to rising inventories in the world’s largest producer of the material, the China Iron and Steel Association said today.

“The export situation is very severe,” Shan Shanghua, general secretary of the association, said in a statement posted today on its Web site. The group had previously forecast a 50 percent drop in shipments.

The prediction indicates Chinese exports will deteriorate further after shipments had plunged by 52 percent in the first two months of the year. Chinese steelmakers are also hurting from a 14 percent decline in domestic benchmark prices since February, with many suffering losses.

“A short-lived prosperity in the steel market, driven by traders restocking, no longer exists,” Shan said. “Steelmakers should take rational measures” to slow production, he said.

Steel inventories gained 38 percent to 6.7 million metric tons by the end of February in China’s 20 biggest cities from January, Shan said.

“We currently forecast no growth in Chinese crude steel production this year,” Goldman Sachs JBWere Pty analysts led by Melbourne-based Malcolm Southwood said in a report dated yesterday. Goldman now predicts contract prices for iron ore, a steelmaking material, will drop 40 percent, worse than an earlier forecast of a 30 percent cut.

Tax Help

Beijing-based Shougang Corp. last week called for steelmakers to cut output by 20 percent after production had jumped on expectation of demand coming from the government’s 4 trillion yuan ($585 billion) stimulus package. Prices are now below output costs, the steelmaker had said.

China, which could become a net importer of steel products in March, should adjust export taxes and raise rebates to help the shipment of higher-grade products, the association said. It should also step up anti-dumping investigations, Shan said.

Dumping is the practice of selling products overseas at below the price in the domestic market.

Chinese steel prices have fallen back to last year’s November low, also the worst since 1994, Shan said.

China’s 71 biggest mills posted an aggregate loss of more than 1.06 billion yuan in January, he said. They may extend losses in February and March on lower prices, Shan said.

The statement is from a speech Shan made to the nation’s key steel producers on March 9.

To contact the reporter for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net