China cuts steel production; demand rises in India
August 30, 2010

As China slows and consolidates its market for the rest of 2010, 40 percent of  the nation’s steel mills have decided to cut production  owning to a rising oversupply in the international market and fears of a decline in prices.

As steel makers in China clip steel output, the price of steelmaking commodities iron ore and coking coal are consequently expected drop next quarter for the first time in a year. Mining executives and analysts estimate that iron ore prices for the fourth quarter will drop by 10-15 per cent and coking coal prices by 5-10 per cent. The fall will either push down steel prices or widen steelmakers’ profit margins.

The drop in quarterly prices comes after iron-ore prices have more than doubled since last year, triggering protests from steel makers. Even after the drop, iron-ore prices will be nearly 120 per cent above last year’s level. Analysts think iron-ore prices, excluding freight, will drop from US$147 to US$130-US$135 a tonne. Coking coal prices will fall from US$225 to about US$210 a tonne.

As steel production in China falls, India’s exports of iron ore to China are expected to diminish further than the expected 38 percent drop this fiscal. This could prove fatal at a time when India’s trade imbalance with China is growing. India, is the world’s third-largest exporter of iron ore and coal  which make up the county’s  major exports to China. To supply its growing infrastructure and construction industries India imports a majority of its steel from China. To lessen thetrade imbalance burden, India’s finance ministry also recently rejected a hike in export duty of iron from the current 15 percent to 20 percent.

Nonetheless, as the monsoon wanes off the coast of India, domestic growth within India, especially in the infrastructure sector is expected to boom.  Defying falling international steel prices, rates are expected to rise by Rs 1,000 a ton in India as demand picks up. On an average, steel prices are currently hovering in the range of Rs 30,000-35,000 a ton.

Essar Steel Executive Director Sales & Marketing Vikram Amin  told the Economic Times, “September is generally a good month for us in view of end of monsoon and festive season. Market is firming up, buoyancy is returning in the industry.”


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