Top ore miners hit by Chinese steel production cut

14 October 2008

Five Chinese steel producers have unveiled plans to reduce their production by up to 20 per cent, in what is being seen as an effect of real-economy stresses in China caused by the Western credit crisis. The cuts also dispel myths about the level of insulation that China's economy has vis-à-vis the global economy.

Four of China's domestic steel manufacturers are reported to have planned production cuts of up to 20 per cent as a measure to drive some buoyancy in steel prices.

Reports say China's biggest steelmaker, Baosteel, would follow the lead of the other four steel makers, and cut back on its output by about a million tonnes, or almost 10 per cent, over the coming quarter.

Though the long-term outlook on China remains strong, the immediate demand curve for the next couple of quarters seems to be set to take a beating for the ore producers.

Even till a month back, speculation about material cuts in China's December quarter steel production would be have been met with scepticism by iron ore miners in Australia, given that the popular notion was that though September-October projections could be below trend, China's economy would pick up rapidly following the Olympic-induced capacity shutdown.

Steel industry observers, till as recently as end September believed that China's domestic economy would be relisient to the Wall Street shakeout, as China is not that dependent on export markets. The belief was that the demand for core raw materials hinged on domestic infrastructure investment, funded largely by private savings instead of 1foreign investment.