Steel Output Growth in China May Slow on Credit Curb

By Bloomberg News

Sept. 2 (Bloomberg) -- Steel production growth in China, the world’s largest maker, may slow for the rest of the year as tightening credit could restrain building expenditure, the China Iron & Steel Association said.

“High levels of steel output can’t be sustainable if fixed-asset investment slows down because of tightening bank loans,” Li Shijun, the chief analyst with the association, said at a conference in Shanghai today.

Crude steel output in China jumped 13 percent in July to a record as the nation’s $586 billion stimulus package spurred demand from builders and carmakers. The nation’s benchmark stock index has dropped 22 percent from its Aug. 4 high on concern banks may tighten credit after extending $1.1 trillion of loans in the first six months.

“The slowdown in bank loans will affect every industry, both steelmakers and consumers,” Li said. “It will curb demand. In the first half, the monetary policy wasn’t moderately loose, it was extremely loose.”

Urban fixed-asset investment for the seven months to July 31 climbed 32.9 percent in China, the statistics bureau said last month. That’s less than the 33.6 percent gain through June and the 34 percent median estimate of 22 economists.

Steel Production

Steel output would be annualized at 540 million metric tons for 2009 based on the average January-to-July production, Li said. China produced 500.5 million tons last year, more than the combined output of Japan, the U.S., Russia and India, the next four biggest makers, according to the World Steel Association. In the first seven months, China accounted for almost half of global output.

China’s cabinet said Aug. 26 it’s studying curbs on overcapacity in industries including steel. Industry Minister Li Yizhong last month said steelmakers should refrain from expansion because of excess capacity.

“Overcapacity is the dominant issue for China’s steel industry,” the steel association’s Li said today.

Steel consumption in the second half may be supported by non-government asset investments and property demand, offsetting any slowdown in government expenditure, Li said. Exports may recover also, he said.

Stainless Steel

Stainless steel output may exceed 7 million tons this year, after reaching 4.06 million tons in the first half, Li Cheng, executive president of the stainless steel council of China’s Special Steel Enterprises Association, said at the same conference.

China has the capacity to make 13 million tons of stainless steel a year, or about a third of global capacity, he said.

Baoshan Iron & Steel Co., China’s second-biggest producer after Shanxi Taigang Stainless Steel Co., plans to raise output of the rust-proof metal “moderately” in the second half, Vice President Chen Ying said Aug. 31.

--Helen Yuan. Editors: Tan Hwee Ann, Indranil Ghosh.

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