China's low GDP target could pull down the prices of raw materials: Indian steel compaies to benefit, if anti-dumping laws are tightened

China has lowered its gross domestic product (GDP) projection to 7.5 per cent for 2012. As half of the world’s steel production coming from China and coking coal & iron ore prices solely dependent on Chinese demand, the Indian steel sector sees mixed signals from the move.
On one hand, the sector believes raw material prices might come down, as the demand for these from China would fall. Steel dumping might increase if high cost capacities in China are not phased out. The Indian steel sector has, time and again, cried foul over lower-than-production cost Chinese steel finding shelter in India. The industry believes this eminent slowdown in China would lead to more exports from the country, and some of it would reach India, causing steel dumping.
Dumping is when a producer sells his product at a price lower than the production cost. China has been known for steel dumping in the past and a slowdown in domestic demand could mean this is going to increase in the near future. Essar, however, is optimistic about the situation and thinks this is going to change. The spokesperson said, “In order to tackle this (sic) issue, Chinese authorities have been undergoing an extensive consolidation process of steelmaking capacities, where during 2006-2010, a total of 122.72 million tonne of iron-making capacities and 72.24 million tonne of steelmaking capacities were phased out. This is likely to continue in the 12th Plan.”
Seshagiri Rao, joint managing director and group CFO, JSW Steel said, “If the steel demand in China falls then the excess steel production is likely to come in the international market. Then there should be some proactive steps to stop dumping.” An Essar Steel spokesperson said, “China, for long, has been facing an overcapacity situation, which allowed it to export its surplus material, often leading to dumping issues.”
China produced 695 million tonnes of steel in the last financial year, half the total steel production in the world. Of the total steel production, close to 50 million tonne found its way to the international market. India’s total steel production is in the range of 60-70 million tonne, with 3-4 million tonne of imports.
Rao said, “Because of the new GDP projection, even if steel production in China falls by 10 per cent, the production would still be significant enough to be absorbed in China. So, there will be exports and this can create problems for us.”
On a compounded annual growth rate basis, the steel production in China grew by 11.7 per cent in the 2006-10 period and in the 2011-15 period, is expected to grow by 4.7 per cent.
The industry feels that a moderation in steel production growth in China can have serious impact on the raw materials like coking coal and iron ore. Essar spokesperson said, “The ‘Big Three’ ore suppliers Vale, Rio Tinto and BHP Billiton will face an overcapacity situation in the near future, which will likely to have an adverse impact on raw material prices.”
Rao said that the positives for the Indian steel sector from the GDP moderation in China will be the drop in raw material costs. Also, China is looking to source iron ore from within rather than depending largely on imports. He said, “We expect correction in raw material prices but not very substantial. Iron ore prices are in the range of $130-$140 per tonne and we don’t see it falling below $100 per tonne. Coking coal is already coming down but we don’t see it coming down below $200 per tonne for the next financial year.
One of the targets for 12th Plan is to achieve iron ore self-sufficiency rate of 45 per cent by 2015 and limiting the proportion of iron ore supplied from its overseas iron ore investments to 50 per cent of China’s total imported ore by then.

News Body Courtesy: The Business Standard