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Clarksons queries China steel projections

Clarksons queries China steel projections

London: As the rapid growth in China's steel production continues to buoy up the drybulk market, London broker Clarksons has questioned whether all is as it seems.
The broker queries whether widely-endorsed growth predictions for the industry can be believed, and if they can, will they bring problems in their wake. China's steel production since 2000 has quadrupled from 100m tonnes to an estimated 412m tonnes in 2006. The forecast is for 500m tonnes in 2010.
One issue, says the broker, is the demand model. Emerging economies in Asia, America and the Middle East consume about 100 kilogrammes of steel per head while mature European economies and the US consume 400 kg. China is already up to 270 kg and forecast to be reaching European levels by 2010. But is the steel really being 'consumed' asks the broker.
Most is going into infrastructure and construction and is difficult to identify and subject to long delivery cycles. The time lag from planning a new blast furnace to concluding new office blocks built with the steel are
unsaleable, has to be at least four years even in China, Clarksons contends.
On the production side, market indicators suggest the tail is wagging the dog, it says. Construction is down 30%, steel exports are up 30% and imports down 32%, while steel prices are down 20%. So far shipping has been unaffected - Chinese iron ore demand growth has absorbed new capesize tonnage for the last four years. But Clarksons' extrapolation of China-related ship demand
versus deliveries going forward suggests a mismatch from 2007 onwards.  [16/08/06]

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