Bao Steel, China’s largest producer recently raised its steel prices for the first time in two years. The behemoth was leading the way for several Chinese steel factories who have subsequently raised prices due to a massive injection of funds into the domestic market which has spurred interim growth.
Given that a massive over supply and softened demand in the domestic economy is generally the precursor to a crisis. The sudden boom in global steel prices since mid-March has left several pundits scratching their heads, most of who feel it won’t last long. Steel being a tenacious topic between China and India, Inchin Closer pauses to check the ductility of the steel industry’s Asian backbone and its butterfly effect on the global economy.
With China in a slowdown and its economy readjusting to new normals, oil and steel – basic raw materials on which an economy’s engines run are the prime tellers of an economy being rebalanced. Steel has been the chief metal keeping China’s fire’s burning. It is the main source of income of several towns and pays a majority of the local governments taxes.
Between early December and late April an 80 percent surge in Shanghai rebar futures prices encouraged debt-fueled infrastructure projects to lift economic growth from a 25-year low. This ignited steel factories to start producing steel again and Beijing to encourage domestic steel makers profit margins. Steel rebar, is used to reinforce concrete during construction. On an international front, under severe pressure from its trade partners in the West – especially the USA and Europe – Beijing clamped down on dumping practices of the Chinese steel industry and enforced global price regulations, to avoid eroding the market completely. A significant step considering China supplies half the world’s steel.
The result? Steel prices will continue to be high as long as Beijing infuses funds into the market to keep construction booming.