Strange but true: World’s largest steelmaker is facing a shortage of steel

China, the world’s top steelmaker may have a shortage of steel. According to iron ore miner, Fortescue Metals Group Ltd., China is currently facing a lack of rebar.

Rebar, short for reinforcing bar, collectively known as reinforcing steel and reinforcement steel, is a steel bar or mesh of steel wires used as a tension device in reinforced concrete and reinforced masonry structures to strengthen and hold the concrete in tension. Rebar’s surface is often patterned to form a better bond with the concrete.

China makes half of the world’s steel, and in recent years it’s been more associated with excess production, soaring steel exports, and sinking prices. This has spurred the government – encouraged by Group of Seven policy makers – to shut down outdated plants, promote consolidation and clean the air that’s polluted by smokestacks. Over the past year, the closure of induction furnaces, which use electricity, has been a focus.

The closure is in line with China’s policy to clear “ditiaogang,” referring to low quality steel made from scrap metal. Such furnaces produced about 6,000 tons of rebar last year. Induction furnaces typically make rebar and their closure has created a shortage of rebar and the prices have gone up.

China’s rebar steel prices have surged after the government closed medium frequency furnaces to stop production in a bid to crack down on low quality steel.

Prices of rebar steel rose 14.4 percent to 3,810 yuan (US$561) per ton this week as production shrank to 62.5 million tons from January to April, down 2 per cent from a year ago, according to lgmi.com, a domestic steel consultancy.

While iron ore prices has tumbled this year amid concerns about supply, as well as slowing demand projections in China, rebar by contrast has soared. There are signs of a possible shortfall with nationwide stockpiles or rebar in retreat, although analysts say that the trend may now be easing as other producers boost supply. Inventories of rebar in China have shrunk every week since mid-February and are now at the lowest since December.

Shifts in China’s policy on coking coal have also been behind the split between iron and steel. When coal surges, as happened last year, mills can respond by using more higher-grade iron ore to boost efficiency.

Iron ore’s slump this year has been caused by increased supplies, including from top producers Australia and Brazil. In April, Australia’s government said it expects output from the biggest miners to top demand, hurting prices.

Stockpiles of ore held at China’s ports are also among factors that had hurt iron ore. As the port stocks come down, it should keep a lid on prices, analysts predict.

 

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