The era of steel paradise ends in China

Years of double-digit economic growth and constant urbanization have increased the country's demand for alloys. Steel has been used in everything from buildings and infrastructure to automobiles and household appliances. Consumption in China has grown by an average of 15 percent each year since the turn of the century and reached 689 million tons last year, accounting for nearly half of the world's total consumption.



However, the need for such growth sooner or later disappears. China's growth rate slowed down from double digits to 7 percent. The result is that China may be close to "peak steel." Analysts at the investment bank Morgan Stanley believe that this is the year in which production and consumption in the country will reach its climax, followed by a soft decline after that. The chairman of the China Iron and Steel Association recently stated that "China's steel production has already peaked."

For the handful of big firms that produce most of the world's iron ore feedstock for steel, such arguments are hard to swallow. In addition to the risk of undermining investment, there is the potential for negative consequences arising from China's steel peaking. These are trade wars, to begin with. It is not possible to trade all products at home, and Chinese steelmakers are increasing their exports, causing horror in other countries who accuse them of dumping. China exported more than 90 million tonnes of steel last year, more than all US steel production, and exports grew more than 50 percent from the previous year.

Western steelmakers are pressuring their politicians to protect them from the wave of cheap Chinese imports. The European Union has said it is imposing anti-dumping duties of up to 25.2 percent on various stainless steel products from China, and America's steel company bosses have gone to Capitol Hill to press Congress to take similar action.

A peak in steel will have a greater impact on KitF itself. Its metallurgical industry is highly fragmented, highly inefficient and overloaded with overcapacity. The government is preparing a fresh push to restructure China's steel industry, but recalcitrant provincial officials are keen to save jobs and discredit those efforts.