Chinese Steel Companies Report Losses In The First Quarter Of 2012

As per a news report, Chinese steel companies are facing issues over lower steel demand and higher steel output. The situation has impacted the steel companies which have reported losses in the first quarter of 2012. These steel companies, which produce half of the world’s global production, have been suffering losses since the last two months. In fact this is the first time the steel sector has suffered losses since the 21st century.

In a situation where the demand is low but the production is high, the high raw material cost has come as double-whammy effect for the Chinese steel players. The steel companies in 2011 ramped up their production to tap the seasonal pick-up in demand. However, the slump in economic growth did not provide much room for the increased production. This led to inventory pile-up with the steel companies which then were sold at lower prices resulting into losses. This can also be attributed to the fact that inflation was peaking up to 3.6 per cent and the GDP growth slowed down to 8.1 per cent in the first quarter of 2012.

Falling exports and a slowdown in real estate investment impacted the country’s growth progress. As mentioned in our earlier updates, the Chinese economy will find it difficult to boost the country’s moderating growth without easing the monetary policy in the coming months and if this happens then we may see a positive impact on the demand for base metal and steel too. However, growth in the coming months will remain slower than what it is expected in the coming quarter as China’s steel output for March 2012 has jumped by 10 per cent - a record high to 61.58 million tonnes.

The industry is expecting some ease on the monetary side to boost the slowing economy. Also it expects the demand for steel to improve in the second and the third quarter of the year. In conclusion, we believe that if the demand in China does not improve, this could lead to a dip in the metal prices all across the globe in the coming months. The repercussion may also be reflected in the Indian markets if our domestic consumption does not recover in the coming months.