Growth of Chinese steel production is deaccelerating (finanly)

Association of Chinese Steel Industry just released production data for the first half of 2008. The pig iron production increased 7.9% to 246 M ton compared to 16.9% growth in 2007. Total steel production increased 12.5% to 300 M ton compared to 23.9% growth in 2007. The production growth in the first half of 08 is outpaced by the demand growth. The steel export is 2691.3 ton down 20.35% or 687.8 ton from the same period in 2007. The average export price is $937.38/ton or 41.4% higher than last year.

I predicted the slow down in steel export in the my old post "Chinese steel industry 2008 and beyond". Both tight monetary policy and higher raw material cost are weighting on Chinese steel industry. The average export price is no longer significantly lower than its foreign competitors. As the raw material cost is rising, the labor cost as a percentage of total production cost is much less important than before. On the other hand, the high material cost makes the production efficiency much more valuable today. Thus the cost advantage for Chinese steel companies are diminishing.

This is certainly good news for my POSCO, whose stock has done relatively well compared to its peers recently. Near term, falling oil price will weight on the steel price and the share of steel producers. I am thinking about hedging this position by shorting some other steel makers.