January 22, 2015 / 1:11 PM / 4 years ago

China's annual steel consumption drops for first time in three decades

BEIJING (Reuters) - China’s apparent crude steel consumption fell for the first time in three decades in 2014, data from an industry association showed, a further indication of how the country’s economic slowdown is hurting industrial demand.

A labourer welds steel bars at a construction site of a new subway station in Hefei, Anhui province, April 29, 2014. REUTERS/Stringer

A decline in the use of steel in China, which is both the top consumer and producer of the alloy, will dent iron ore prices that have already been roiled by a global oversupply.

Spot rates of the steelmaking ingredient are currently mired near a 5-1/2 year low $65.60 per tonne.

China’s apparent crude steel consumption fell 3.4 percent from a year ago to 738.3 million tonnes in 2014, according to calculations published by the China Iron and Steel Association (CISA) on Thursday.

Official data shows China’s power output growth fell to a 16-year low last year, while coal output likely dropped for the first time in more than a decade.

Struggling with weak demand as economic growth slowed to 7.4 percent in 2014, the lowest since 1990, Chinese steel producers turned to exports, which according to CISA rose 64.5 percent to the equivalent of 84.4 million tonnes of crude steel last year.

Overseas sales got a further boost last year as exporters took advantage of a loophole that allowed them to gain tax rebates by adding tiny quantities of boron to their products. That loophole has since been closed.

CISA said in a report published on its website that around 40 percent of exports in 2014 contained boron, and the decision to cancel the rebate this year will have “a certain impact” on the domestic market. (www.chinaisa.org.cn)

Amendments to China’s Environmental Protection Law, which came into effect on Jan. 1, will raise production costs in an industry already trying to survive on profit margins of less than 1 percent in 2014, it added.

CISA does not foresee any major improvements in the domestic steel market going into 2015, with weak demand and excess supply still weighing on prices. Steel output in China could be approaching its peak, CISA has previously said.

China’s 2014 steel output rose 0.9 percent to a record 822.7 million tonnes over the year, data showed.

“Affected by overcapacity, it is unlikely there will be any turnaround in oversupply in the steel product market or any big recovery in prices,” CISA said.

Reporting by David Stanway; Editing by Richard Pullin and Himani Sarkar

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