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China steel demand to forge on long after Games

BEIJING (Reuters) - A building boom in China is under way as the country gets ready to host the 2008 Olympic Games, but its appetite for steel is expected to grow unabated long after the flame is doused at the closing ceremonies.

From the showpiece Bird’s Nest stadium to a light-rail connection for Beijing’s airport to new hotels in far-away cities, steel beams are clanging non-stop at construction sites nationwide.

With just a year to go before the Games begin, analysts say the development of China’s provincial cities should sustain steel demand even after the athletes go home.

“Right now China is adding a lot of infrastructure, like subways, for instance. That type of demand might fall off,” said Xu Aihua, an analyst at Beijing metals consultancy Antaike.

“In other areas, residential building might be nearing a peak. But there is a lot of demand still not satisfied, and in categories like light industry, demand is still rising.”

Olympic preparations have directly accounted for between 2 million and 3 million tons of steel, spread out over more than four years, analysts say. That is a drop in the bucket compared with an estimated nationwide demand of 446 million tons of crude steel this year.

Crude steel equivalent demand will reach between 5.07 million and 5.6 million tons in 2010, implying a slowdown in demand growth from 12 percent this year, data from the China Iron and Steel Association showed.

“But if annual GDP growth remains around 11 percent crude steel demand will maintain the possibility of further increases,” CISA vice chairman Luo Bingsheng said on Monday on growth to 2010.

China’s steel production growth has outstripped consumption in the past few years -- pressuring domestic steel prices, turning the country into a net steel exporter and raising trade tensions with other steel producers.

Strong steel exports are likely to continue for the foreseeable future, with or without a domestic slowdown.

But analysts say surging economic growth and the breakneck pace of urbanization would help stave off a steel glut.

JPMorgan said recently it expects Chinese steel demand to rise 13 percent in 2008 and 12 percent in 2009, exceeding capacity growth of 7 percent and 5 percent, respectively.

PSYCHOLOGICAL BOOST

The Beijing Olympics has been likened to the Seoul Games of 1988, as an international showcase for a newly confident Asian economic behemoth.

But some countries have seen slower growth after the crowds went home. Economic growth in South Korea, Spain and Greece, for instance, slumped the year after they hosted the Games.

In those cases, however, the Olympic host city was also the country’s economic centre. In contrast, Beijing contributed less than 4 percent of China’s GDP last year.

Beijing’s spending will be on a far greater scale than previous Olympics Games. Beijing Olympics organizers have said the city plans to spend $40 billion on improving infrastructure ahead of the Games, compared with more than $3 billion for Seoul.

Some measures include moving Beijing steel maker Shougang Iron and Steel Group to a new, state-of-the-art coastal facility and closing its polluting plants in the Chinese capital.

Even with those projects, fixed-asset investment for Beijing in the first six months of this year was 138.75 billion yuan ($18.33 billion) -- less than 3 percent of the 5.417 trillion yuan of fixed-asset investment nationwide.

In China’s provincial capitals, many large infrastructure projects are just getting under way, although miles of new apartment blocks already surround every major city.

Even places which will not stage a single Olympic event, such as rust-belt cities like Chifeng, in Inner Mongolia, are primping themselves for the Olympics with new hotels and spruced-up city centers.

The Olympics clearly weighs on the minds of policy makers. Analysts expect that Beijing will be reluctant to intervene in the country’s red-hot stock market or crack down on the easy money awash in the country till after the Olympics.

But Olympics aside, analysts believe China’s thirst for steel will continue to be driven by Beijing’s plans to modernize railroads and build power lines as well as by the clamor for cars and condominiums from millions of increasingly affluent Chinese.

“A lot of big projects will continue through 2010 and beyond. For instance, Nanjing is adding five or six subway lines -- they are only getting approved one line at a time,” said Henry Liu, an analyst at Macquarie Research.

“The Olympics won’t have much influence, unless it’s psychological.”

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