China is underreporting the amount of steel it makes by about 40 million metric tons a year – roughly the amount made by Germany — according to a new analysis that provides insights into the recent high prices for the main raw material used by the world steel industry.
Tom Mihalek | AFP | Getty Images
Detective work by Meps, a UK steel consultancy, indicates that Chinese steel output last year was 672 million metric tons — nearly half of the world output — as opposed to the 627 million tonnes reported by the Chinese authorities.
Behind the underreporting, according to Peter Fish, Meps managing director, is that plants that Beijing would like to shut down because they are not economical and produce too much pollution have stayed open to meet local demand.
Regional data-gathering bodies around China have disguised the fact the mills are still churning out metal by declaring that output is lower than is the case. According to Mr Fish’s analysis, the higher-than-reported steel production creates extra demand for iron ore — the main constituent of steel — and has been one factor keeping prices of the commodity at unprecedented highs, eating into steelmakers’ profit margins globally.
Since January 2009, iron ore prices have more than doubled, in contrast to a 50 percent rise in benchmark steel prices.
Terance Ko, a steel analyst at the Hatch Consulting group in China, said: “Mr Fish’s numbers seem entirely plausible and is in line with our own estimate.”
Xu Zhongbo, analyst with Beijing Metal Consulting, said steel output figures emanating from China were routinely adjusted to fit stated government policy.
“If the country is curbing capacity...?then [a specific province] will report lower steel production. If the government’s demand to limit production is not too great, the province will report the actual figure,” Mr Xu said. The high prices for iron ore have benefited the three big producers — Rio Tinto , Vale and BHP Billiton . One of the big three — which asked not to be named — said: “We agree steel production last year was higher than the statistics suggest. From an iron ore company perspective, our marketing people expect these things to happen.”
The World Steel Association — the Brussels-based trade group for the industry — relies on official Chinese figures for its own widely followed data. The WSA said there might be “a small amount of underreporting” from China but it was “nothing like” what Mr Fish has reported.
JFE, the Japanese steelmaker, said it recognized there might be a gap between reported and actual production from China. “We believe that as the country continues to reorganize its steel industry to allow for the closure of outmoded plants, the gap...?will become smaller.”