Chinese Steel Update

In case you have not noticed, steel production is very big business for China. In 1990, China produced 9.1% of the world’s steel and was the fifth-largest producer, behind the Commonwealth of Independent States (the former Soviet Union), the European Union, Japan, and the United States. Since 1990, Chinese production has increased nearly 63%. In 2002, China produced over 20% of the world’s steel, and was firmly in the number one position ahead of the EU, North America, Japan, and the CIS.

Despite the rapid growth in Chinese steel production, it still could not keep up with its own booming demand. In response, China has also become the most dominant importer in the world. Between 1992 and 2001, Chinese imports more than tripled, reaching 25.6 million metric tons.

So, what is the problem? China produced and imported more than it could consume, despite a booming economy. A 14% increase in production was forecasted for 2002, but instead, production expanded almost 25%. The excess production and imports have caused inventories to swell. Suddenly, the demand for imports has dried up. In reaction, global spot prices for several benchmark products are beginning to slip. Exporters will face continuing challenges from the weaker Chinese demand, exacerbated by the weakness of the U.S. dollar, to which the Chinese currency is pegged. Add SARS on top of that and the problem gets even worse.

This situation points up an important point that all of us in the economic development business should bear in mind, which is that it is very difficult to predict where the market will head in this uncertain world economic and political environment. This same problem complicates the ability of businesses in most countries to plan future business facilities. This suggests that businesses may continue to struggle as they work to position themselves for the future.

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