Will the Drop in Chinese Steel Production Affect Australia

These days, there is no way to get around the obvious: national economies appear to be in decline – globally. It’s an extremely serious problem that affects individual consumers … large corporations and small businesses … and entire industries.

Fabricated steel is one industry that is feeling the effects of the weakened global economy. That is painfully recognizable within the borders of the world’s largest producer and consumer of fabricated steel products … China.

According to an article recently published by Reuters, construction projects are “sputtering” all over the vast country, a fact that clearly affects the major steel producers. Another problem hurting the companies is the corresponding drop in steel prices.

In fact, Judy Zhu, an analyst with Standard Bank, Shanghai, has said that inflation-fighting policies by China’s central bank have served to choke off funding for new construction projects in all of China’s major cities, creating a weakened – and very poor – demand for domestically-produced steel.

Ms. Zhu further stated that 2012 will be a difficult year, as well, with demand for steel being at its weakest in several years, actually since 2007. Growth is expected to peak at about 4.4%, well below the projected growth for this year, 2011, which is at 11%.

There is even more bad news. Iron ore sales are expected to plummet and result in a reduction of sales of about $8 billion … well below iron ore sales in the current fiscal year. This drop in sales is almost certain to impact such major Australian producers as Rio Tinto, Ltd. and BHP Billiton, Ltd., among other companies in Australia and elsewhere around the globe.

Clearly, the news for the upcoming year is somewhat bleak. But amid all the darkness there may actually be a silver lining. It is as follows …

The Chinese Yuan (its national currency) has been losing its value against other currencies worldwide. As a result, Chinese fabricated steel products no longer enjoy a huge price advantage over similar products produced by companies in Australia and elsewhere in the Pacific Rim and in North America.

This means that 2012 can be a year in which Australian producers of fabricated steel products finally enjoy a much larger share of the “business pie” for steel orders on all domestic construction projects.

If it happens – and it should happen – that will be great news for Australia’s steel producers … for the workers in these companies … and, of course, for the Australian economy.

It has long been said that one person’s misfortune is another person’s good fortune. That certainly seems to be what will take place in 2012 all over Australia. However, in this case, it won’t be a single individual who profits … it will be entire corporations, their employees and, most importantly – the shops and businesses that rely on consumers to visit and make purchases.

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