Quotes: US MENA   Enter Symbol: NewsLetter: Search: advanced

China steel plant closure points to slow recovery  Join our daily free Newsletter

MENAFN - Arab News - 02/10/2012

No. of Ratings : 0
Add to Mixx!


(MENAFN - Arab News) LAUNCESTON, Australia: The decision by Boashan Iron & Steel Co, China's biggest listed steelmaker, to idle a plant may both be a sign of how bad things are in the key sector and a contrarian signal that a turnaround is near.

It's easy to construct an argument that the move to close the 3 million ton-a-year plant in Shanghai is proof that China's steel sector has too much capacity and supply is well ahead of demand.

Closing down higher cost steel production is after all what should happen when demand cools and prices decline, and there is also a need to work through an overhang of inventory built up in the first half of 2012 when steelmakers maintained output even as economic growth eased.
However, an argument can also be built on saying the Boashan move is an early indicator that things should start turning around within the next 12 months.

Removing the higher cost production allows prices to stabilize as supply adjusts lower to reflect the change in demand.

What you are basically left with is a situation where the current short-term pain is replaced with longer-term gain.

The question then becomes how long are iron ore and steel producers going to have to wait for the good times to return?

It's worth looking back to the start of 2012 when many analysts thought Chinese commodity demand would slow in the first half before rebounding in the second.

Instead what happened is that the economic growth rate eased as expected, but raw commodity consumption and finished product output continued apace, particularly in the steel sector.
This led to a build-up of inventories, falling prices and the current situation, where even if demand does pick up, it will take some time to work its way down to commodity producers.

The most-traded steel rebar contract in Shanghai has lost 13 percent this year and while it has picked up slightly in recent weeks, it's still near the record low hit last month.

Spot iron ore prices have also rebounded recently, gaining 17 percent in September, but they were still down 22 percent for the third quarter, the steepest drop since the Steel Index starting compiling data in 2008.
The idling of the Boashan steel plant in Shanghai is unlikely to be the last such occurrence, especially if the Chinese government's 160 billion infrastructure-spending boost fails to increase demand meaningfully in the next few months.

Iron ore capacity is also being closed in China, with high-cost mines the first to go.

This is positive for the big, global iron ore miners such as Vale, BHP Billton and Rio Tinto, as their lower cost bases means they can keep producing at a profit long after Chinese rivals are deep in the red.
But just as analysts were off with the timing of the slowdown in China's commodity demand, hopes that it will rebound by the end of this year may be too optimistic as well.

Even if China's economic growth does start to regain momentum, and by that I mean a gross domestic product outcome above 8 percent in year-on-year terms, it's likely that commodity demand will lag the improvement, just as it remained resilient during the first half of slowing GDP growth.
The official Purchasing Managers' Index rose to 49.8 in September from 49.2 in August, which was the lowest reading since November 2011.
While still in contractionary territory below 50, the PMI is consistent with an economy bouncing along the bottom of the cycle.

But the compiler of the PMI, the National Bureau of Statistics, also said on Monday that while demand for food, beverages, tobacco and computers improved, that for steel, refined metals and construction materials remained under pressure.

This is consistent with the view that any recovery in the iron ore and steel sector is going to be slow, and more likely U-shaped rather than the more V-shaped rebound that happened after the 2008 global financial crisis.
The closure of one of Baoshan's steel plants confirms what we already know: namely that China's steel sector is now doing it tough and suffering from the hangover of over supply in a softening demand scenario.
But it also lays the groundwork for improvement in the sector, albeit a slow and lumpy recovery rather than strong and sustained as many producers would prefer.

- Clyde Russell is a Reuters market analyst. The views expressed are his own.


  MENA News Headlines
Apr 24 2014Qatar- HH Sheikha Moza Meets Mayor of Kobe Visits RIKEN Research Institution ,Qatar News Agency
(MENAFN - Qatar News Agency) Kobe April 24 - Her Highness Sheikha Moza bint Nasser Chairperson of Qatar Foundation for Education Science and Community Development (QF) today held a meeting with the ...

Apr 24 2014Qatar- Sidra-BMC Event Boosts Biomedical Research Publishing ,Qatar News Agency
(MENAFN - Qatar News Agency) Doha April 24 - A symposium organised jointly by Sidra Medical Research Centre and BioMed Central (BMC) mulled trends in research and on open access publishing here ...

Apr 24 2014Qatar- Mannai Corp Q1 Net Profit up 73% to QR 150.1 Million ,Qatar News Agency
(MENAFN - Qatar News Agency) Doha April 24 - Qatar Exchange listed Mannai Corporation (QE: MCCS) net profit is up 73% to QR 150.1 Million for the first quarter of fiscal year 2014 ending March 31 ...

Apr 24 2014Bahraini firms forecasted to grow 10 pct ,MENAFN
(MENAFN) In a report based on a study of over 650 companies across GCC, Kuwait Financial Centre (Markaz) forecasts a growth of the Bahraini companies' earnings by 10 percent in 2014, Gulf Daily News ...

Apr 24 2014Israeli Army Storms Deir Samit Village West of Hebron ,Qatar News Agency
(MENAFN - Qatar News Agency) bron April 24 - Israeli army forces stormed at dawn Thursday Deir Samit village southwest of Hebron city in the West Bank. The Israeli forces conducted raid and search ...

Apr 24 2014Qatar Airways to add more seats on Doha-Vienna route ,MENAFN
(MENAFN) Qatar Airways plans to offer more 1.700 seats on its Doha-Vienna route beginning from September 2014, according to Gulf News. The company aims to expand the growing passenger demand from ...

Apr 24 2014Qatar- QFC Authority Five-a-Side Football Tournament Kicks Off ,Qatar News Agency
(MENAFN - Qatar News Agency) Doha April 24 - Qatar Financial Centre (QFC) Authority's first Five-a-side Football Tournament is displaying dribbling skills of executives from Doha's financial ...

Apr 24 2014Qatar Stock Exchange Down 0.05% ,Qatar News Agency
(MENAFN - Qatar News Agency) Doha April 24 - The Qatar Exchange ended in the red area when trading closed Thursday at 12954.93 points (0.05%) down 6.63 points from the previous closing of 12961.56 ...

Apr 24 2014Israeli Tanks Enter Gaza Border area ,Qatar News Agency
(MENAFN - Qatar News Agency) Gaza April 24 - Six Israeli military tanks on Thursday entered a border area in the southern Gaza Strip witnesses said. The tanks crossed into Gaza in an area called ...

Apr 24 2014President Salva Kiir Relieves his Chief of the General Staff ,Qatar News Agency
(MENAFN - Qatar News Agency) Juba April 24 -South Sudanese President Salva Kiir relieved Chief of the General Staff of south sudan army James Hoth Mai. This came in a presidential decree aired ...

Apr 24 2014Afghan Guard Shoots Dead 3 Foreigners in Hospital ,Qatar News Agency
(MENAFN - Qatar News Agency) Kabul April 24 - Three foreigners including a doctor were shot dead and their colleague wounded when a guard of a private Cure Hospital opened fire on them in the ...

Apr 24 2014Omani non-oil exports to enter African markets ,MENAFN
(MENAFN) A senior official at the Oman Chamber of Commerce and Industry (OCCI) said that the Sultanate is seeking expansion in new African markets, in a time it is looking forward to reduce its ...

Apr 24 2014Georgian Justice Minister Leaves Doha ,Qatar News Agency
(MENAFN - Qatar News Agency) Doha April 24 - HE Minister of Justice of Georgia Tia Tsulukiana left Doha on Thursday morning wrapping up a two-day official visit to the country. An agreement on ...

Apr 24 2014US Secretary of State Meets Egyptian Intelligence Chief ,Qatar News Agency
(MENAFN - Qatar News Agency) shington April 24 - US Secretary of State John Kerry has met with the Egyptian Intelligence Chief Major General Mohammed Ahmed Fareed al-Tohami who is currently ...

Apr 24 2014Egypt's Interim President Receives Phone Call from South African President ,Qatar News Agency
(MENAFN - Qatar News Agency) Cairo April 24 - Egypt's Interim President Adly Mansour has received a telephone call from President of the Republic of South Africa Jacob Zuma in which they discussed ...

Apr 24 2014Uruguay Public Health Minister Meets HE Qatari Ambassador ,Qatar News Agency
(MENAFN - Qatar News Agency) Montevideo April 24 -Minister of Public Health in Uruguay Maria Susana Mu?iz met here on Thursday with HE qatari ambassador to the republic of Uruguay mohamed hassan ...

Apr 24 2014Egyptian Premier Off to Chad ,Qatar News Agency
(MENAFN - Qatar News Agency) Cairo April 24 - Egyptian Prime Minister Ibrahim Mehlib left cairo on Thursday for Chad the first leg of a three-day two-state trip that will also take him to Tanzania ...

Apr 24 2014Australian Federal Parliament Deputy Speaker Meets HE Qatari Ambassador ,Qatar News Agency
(MENAFN - Qatar News Agency) Canberra April 24 - Australian Federal Parliament Deputy Speaker Bruce Scott met here Thursday with HE Qatar's Ambassador to Australia Yousef bin Ali Al ...

Apr 24 20143 GCC countries among top 30 on network readiness index ,MENAFN
(MENAFN) According to an annual global technology survey for network readiness index for 2014, three GCC countries have made it to the top 30 list for the third year in a row, Gulf Daily News ...

Apr 24 2014Morocco Admitted As Observer Member to SICA ,Qatar News Agency
(MENAFN - Qatar News Agency) La Romana Dominican April 24 - Morocco has been admitted as an observer member in the Central American Integration System (SICA) which also includes each of Belize ...





Middle East North Africa - Financial Network

MENAFN News Market Data Countries Tools Section  

Middle East North Africa - Financial Network

Main News
News By Industry
News By Country
Marketwatch News
UPI News
Comtex News

IPO News
Islamic Finance News
Private Equity News

How-To Guides
Technology Section

Travel Section

Search News

Market Indices
Quotes & Charts

Global Indices
Arab Indices

US Markets Details


Oil & Energy

Currencies Cross Rates
Currencies Updates
Currency Converter

USA Stocks
Arab Stocks

Saudi Arabia 

Investment Game
Economic Calendar
Financial Glossary

Portfolio Tracker


Financial Calculators

RSS Feeds [XML]

Corporate Monitor


Real Estate
Submit Your Property

Arab Research
Buy a Research

Press Releases
Submit your PR

Join Newsletters

© 2000 menafn.com All Rights Reserved.  Terms of Service | Privacy Policy | Contact Us | Advertise | About MENAFN | Career Opportunities | Feedback | Help