This report is not good news for steel suppliers to China but very good for suppliers of Fe ore. It does not mean China's demand for steel is dropping markedly, although their economy is slowing a little. Like only increasing at a rate of about 9%pa rather than a very inflationary dangerous 12%. Their rapidly growing steel making industries will be clamouring for feedstock.
AAP 06:28:00 4415 05/07/2005 European steel makers cut output amid slowing demand from China AAP News 6:28:020 5/07/2005 by Nicolas Revise PARIS, July 4 AFP - European steel manufacturers have reduced their production levels in 2005 in response to a global slowdown in demand and an increase of production capacity in China, the main export market during the record year of 2004. One by one last week, Europe's largest manufacturers announced cuts in production for the third quarter of 2005, following on from reductions in the second quarter. The world's largest producer Mittal Steel said on Wednesday that it would reduce production by a million tonnes in the third quarter in order to "re-establish a balance between global offer and demand" and "help reduce stocks". A day later, German group ThyssenKrupp announced a cut of 120,000 tonnes of stainless steel production in the third quarter, the equivalent of 20 percent of its European capacity, following a 500,000-tonne cut in the second quarter. Finally, the world's second-largest producer Arcelor followed suit and unveiled its own production cutbacks. Stainless steel production has been reduced by 15-20 percent since April, the company said on Friday. Two factors explain the move to drastically pull back production: China, which was an insatiable importer of European steel during 2004, is becoming less dependent on imports as its own production comes on stream, and worldwide stocks have built up that are beginning to depress prices. A recent report in the Financial Times detailed Chinese plans for a further three new steel manufacturing plants with an annual capacity of 16.5 million tonnes which will substitute imports for Chinese-made steel. The International Iron and Steel Institute, an industry organisation based in Brussels, estimated that Chinese production of steel grew by 37.5 percent in May on a 12-month basis. Production leapt to 29.7 million metric tonnes, equivalent to about one third of world production. China is now the world's largest producer of crude steel, but lacks the technology to produce value-added high-quality steel. "China's production deficiency should continue (in these areas)," said Jean-Jacques Limage, analyst at Fideuram Wargny. He warned that "the overheating of its economy could lead to a reduction in (overseas) demand", however. For other analysts, the cutbacks are a simple adjustment to real demand after the boom year of 2004, which was partly driven by speculative buying in anticipation of demand from China. Over 2004, when prices were on a constant upward path, "the apparent demand was higher than real demand", according to Thierry Lefrancois, analyst at Natexis. This year, demand has fallen as Chinese imports of steel have slowed, but it is above all "steel producers which are bringing their stocks down to a normal level", he explained. "Clients believe that prices are going to fall so are waiting for the best moment to buy," said Lefrancois. AFP
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