Beijing (AsiaNews) – The scarcity of raw materials and other resources could lead to a 25 % drop in China's steel production, said Luo Bingsheng, president of the China Steel and Iron Association.

Just a few days ago Prime Minister Wen Jiabao warned the country of the risks of the economy overheating. According to Luo Bingsheng there is truth to such a warning. In terms of logistical capacity and Chinese mining activity, the country might not be able hold its own, that is, regarding satisfying its own internal steel demands.

"Despite having set our production capacity at 52 million tons this year, we are expecting to be able to find additional new raw materials capable of producing only 38 million tons."  

The plants which will begin production this year were commissioned some years ago with a view to meet the country's increase in steel and iron needs, seen as a direct consequence of organizing the 2008 Olympic Games. 

Last year China produced 220 million tons of steel, twice as much as Japan, the world's second largest producer. Due to its own high demands, China is also the largest importer of finished steel and raw materials for producing iron and steel.  

After 5 years of tumultuous growth, making China the world's largest steel producer, its expected 25% drop in overall production this year is a sign of the difficult waters China finds itself in when facing the global market.  

In the past China relied almost exclusively on its own resources. Today, however, it faces its first serious limitation in terms of development, since it must find raw materials abroad. All this causes various problems in the fields of transport logistics and international relations.

Moreover, undersizing investments in China's mining industry has caused long-term international supplies prices to increase by 18.6% while steel prices at home have risen by 35%; 47% of Chinese steel production comes from materials imported and mined in distant lands, as 70% of the world's iron resources are in fact located in Brazil and Australia.    

This means that transport costs for shipping material to China form a genuine large part of the total cost sustained by Chinese steel producers. Freight costs have quickly risen from 10 to 40 dollars a ton for material shipped from Brazil, while in Australia prices have also skyrocketed from 5.50 to 20 dollars a ton.  

China's emergence as the world's leading producer (and as consumer of raw materials) has repercussions of all kinds on the flow and balance of international trade. This year Chinese steel consumption should increase by 13%. Last year it grew by 25.6%. Yet even with its steel needs cut in half, China is sure to greatly influence the global market. Already last year, for example, there were repercussions felt in Italy, where lacking carbon coke used in steel production, steel plants were closed down in Genoa, and now those in the Umbrian town of Terni are at risk of suffering the same fate.

There has also been great tension felt over prices recorded for finished products, and at a time when Europe finds itself in a deep recession and America making a slow economic recovery. The price of heat laminated steel coils has risen steeply from 200 dollars a ton in 2002 to 500 dollars in recent weeks. This figure is significant, since heat laminated steel in turn is the raw material used in later industrial works and processes.  (MdO)

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• steel
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