It is reported that demand for Chinese steel products could decline next year for the first time since the Asian giant opened up to trade with the rest of the world in the early 1980s.
Analysts from Standard & Poor"s aid that a slowdown in construction and plummeting car sales in the West will have an adverse impact on Chinese steelmakers that even massive domestic expenditure on infrastructure cannot offset.
Mr Chok Wai Lee and Mr Su Peng Ng analysts said that the global slowdown "may cause demand for Chinese steel products to decline in 2009, a first since 1981."
The country"s steelmakers have enjoyed largely unbridled economic growth since Beijing embarked on the path toward market reform and more open trading relations with other nations under Deng Xiaoping three decades ago. However, Chinese leaders faced up to the lowest level of GDP growth in five years in the Q3 of 2008, as China"s export driven economy was hit by the global economic downturn.
The S&P analysts said that the risk that Chinese steelmakers will turn in losses in the final quarter of 2008 and the Q1 of 2009 as a result of lower sales and falling steel prices is high. China"s domestic steel prices have been slashed in half from highs reached earlier this year, and steel companies have seen their share prices slip by as much as 30% from the end of September. Meanwhile, Baosteel Group, China"s largest steel producer, is cutting output for the rest of the year to limit losses, Chinese state media reported. Baosteel is following other Chinese steel producers that have announced they will cut production by between 15% and 20% in light of slowing sales.
Mr Wang Tao UBS analyst said that "The biggest force dragging down the economy should be weak external demand. The deep global recession we now envisage for 2009 could cause global trade to shrink further and China"s export growth may be barely positive."
China Iron & Steel Association recently reduced its forecast for 2008 production to 500 million tonnes from between 550 million tonnes CISA had targeted earlier this year. The new target represents 2% growth over last year a stark contrast to the 21.8% compound annual production growth the industry recorded between 2002 and 2007. During that period, the Chinese economy was booming, turning in double digit GDP growth QoQ on the back of surging exports to the US and Europe. But China"s GDP growth fell to 9% in the latest quarter. Weak economic data out of Beijing and the US has prompted UBS to downgrade its forecast for China"s 2009 GDP growth to 7.5% from 8% earlier.