An official from the China Iron and Steel Association said that China''s total steel output growth is set to fall in the coming months amid a worsening power shortage, in turn causing the country''s coking coal demand to ease.
With their average profit margin hovering at just 2.9% in 2010, CISA said Chinese steel makers were facing growing uncertainties and their output would be especially vulnerable to any increase in raw material costs as well as any further credit tightening by Beijing.
Mr Wang Yingsheng, head of CISA''s market research division, said that "The power cuts will accelerate the consolidation of the steel sector as it forces smaller and less efficient mills to shut. Overall output will slow in the coming months and that means demand growth for coking coal will moderate." He added that slower auto sales were also contributing to weaker steel demand.
Power shortages during the peak summer and winter season have become a norm in China, the world''s largest steel producer. The power shortages have started earlier than normal this year and China has rolled out power rationing across the country, such as the central Hunan, Jiangxi and Chongqing provinces, central Hubei and Hunan, as well as eastern Jiangsu, Zhejiang and the southern province of Guangdong.
Energy intensive and high polluting industries, such as steel mills, are always one of the first sectors to be slapped with power rationing. Analysts have warned that a lengthy and severe power crisis could dent China''s steel output and weigh on international iron ore and coking coal prices.
In the longer term, CISA also said China''s total steel consumption annual growth would moderate to between 2.6% to 4.6% over 2011-2015, based on an economic growth of around 7%. That compares with the stellar annual growth of around 12% recorded over the past five years.
Mr Wang predicted China''s demand growth for coking coal would also ease between 2011 and 2015 on the back of better technologies and efficiencies of new furnaces.
( Source: www.steelguru.com )