Chinese economy and industry have the distinction of setting the global tide. Even though the glory of early 21st century has been tarnished by the recessionary headwinds and persistent uncertainty still the sheer demand size and insatiable potential for growth has kept the momentum way ahead of other nations.

After exhibiting remarkable resilience during the depths of recession propped by USD 586 billion stimulus package it became the rallying point for recovery in global economy followed by other BRICs nations. Blistering steel production was easily getting consumed by booming housing and construction sector. Steel prices galloped providing the global steel industry succor when all quarters were plunged in darkness.

Blind quest for production and supply exposed the Chinese economy to fragile credit driven economy. Speculative buying rather than actual demand took center stage. There was inventory pileup unsupported by demand and payment. At the same time speculative buying in reality sector raged giving rise to vicious cycle of buying and low consumption. In a bid to avert catastrophe prevalent in the western world Chinese authorities reacted swiftly at the first signals of rising inflation and payment defaults.

Changing gears is always easy in state controlled economy but its ramifications are equally damning and difficult to grapple. Government went in overdrive by clamping down reality sector by banning 3rd party transactions followed by hiking of lending rates. Hounding down ghost companies and trading of credit lines. Concurrently prolonged economic headwinds from major trading partner viz., USA, Europe and SE Asian nations started taking toll of exports thereby eroding the advantage. SHFE stock index became more sensitive to changing fortunes at NASDAQ, DOW JONES, NTSE, KIOSPI, DAX etc.

Irrespective of regulatory and policy measures unleashed by government the fragmented and unorganized structure of Chinese steel industry has made the job of reigning production equally difficult. Whereas capacity rationalization was implemented in urban centers but it was difficult in the forlorn quarters. In these regions socialistic concern of averting unemployment remained prime concern castigating production pruning. However environmental regulations have made shutting down of obsolete capacities mandatory and it won’t be long before results show up.

The first casualty of vicissitudes in steel industry was the iron ore market. It was beset with turbulence subject to speculative buying. Price levels have shown wide fluctuation from levels of USD 94 per tonne in September 2012 to the peak of USD 160 per tonne in February 2013. Surprisingly import levels have maintained uptrend increasing by 19% YoY in the Q1 and hitting an all time high of 87 million tonne in January 2014.

The general trend of late has been of low levels hovering around USD 105 to USD 110 per tonne and is expected decline further after the Government launched investigation against malpractices in credit lines for speculative and profiteering in iron ore imports by traders. Factually owing to this reason imports soared despite slow demand from steel mills. Stocks have reached astronomical levels of 114 million tonnes. Trader’s commenced panic selling before legal noose tightens steep slide in coming weeks

Finished steel levels both domestic and export has declined losing 8% and 2% respectively in Q1. Excess inventory has led to selling pressure on Chinese mills and traders leading to price cuts. Marginal impact in domestic market it led to turning the heat on CIS and European exporters leading to counter price cuts. HRC and Rebar prices have never picked up being further crippled by currency and financial instability in Turkey, Ukraine etc. Despite devaluation of CNY export volumes haven’t moved up. Protective measures taken by USA (anti dumping) against pipes and other steel products from China have left them hapless.