Zhang Guangning, chairman of the China Iron & Steel Association, (CISA) started it, when he told the Association's annual conference in January that "China's steel sector has already entered a period of peaking and flattening out."
Anodyne sounding words they may be but they have generated shock waves that are still reverberating in news headlines and analyst notes around the world.
Because China, the engine of global steel production and consumption, is not supposed to have reached the stage of "peaking and flattening" yet.
Iron ore miners such as Rio Tinto and BHP Billiton would not have invested billions of dollars in lifting supply, if they thought demand for their product was already topping out in what is their biggest single customer.
Sure, a slowdown in the breakneck speed of the Chinese steel juggernaut was expected but "peak steel" certainly wasn't expected until some time in the next decade.
So is Zhang right? Because if he is, it's very bad news indeed. For China's steel sector. For iron ore miners. And for the rest of the world too.
ONE PEAK OR TWO?
"Peak steel" is a more ambiguous concept than it seems.
Seen through the eyes of the iron ore market, which it tends to be, it means a peak in China's steel production.
And there are plenty of signs that output growth is braking sharply. It was just 0.9 percent last year, according to the World Steel Association, citing CISA's own estimates.
Give or take a percentage point or two because no-one, inside or outside China, is quite sure about the accuracy of the official figures.
At 815 million tonnes last year, there's a lot of margin for statistical error and, it is widely suspected, a lot of long-standing errors in the statistics.
But the trend is ominously clear. Production growth is definitely flattening, even if it hasn't peaked yet. CISA itself has projected a further output rise to 837 million tonnes in 2015.
Which is rather the problem because Chinese consumption is showing worrying signs of having already peaked.
CISA's own estimate is that Chinese apparent consumption fell 3.4 percent last year, the first contraction in three decades. Emphasis on the word "apparent" in that sentence because quantifying with any degree of statistical accuracy what's going on in a steel sector as large as China's is a thankless task.
But there is strong corroborating evidence that demand is struggling.
Steel prices within China are completely bombed out.
On the Shanghai Futures Exchange, steel rebar, a form of steel most associated with construction, has spent the last couple of months wallowing at its lowest levels since the contract was launched in 2009.
Hot rolled coil, more reflective of the broader manufacturing sector, had been holding up better until it too collapsed in the early part of January.
Steel exports, by contrast, are booming. China exported 94 million tonnes of products last year. That was more than last year's steel production in the U.S., the world's largest third-largest producer.
Exports in January were equivalent to an annualised 124 million tonnes. That was more than production last year in Japan, the world's second-largest producer.
Everyone's worried about peak steel production in China. Maybe they should be more worried about peak steel consumption.
ERRORS OF THE PAST
But can Chinese steel consumption really have peaked, or even come close to peaking?
Even factoring in Beijing's efforts to shift the Chinese growth story from a fixed asset investment model to a slower but more sustainable consumer-led model, steel consumption should still have plenty of upside.
Or as analysts at Natixis expressed it with some understatement, "the rather worrying fact (is) that China may have achieved its peak steel demand at per capita income at or below $5,000 (2005 dollars), well below the $15-25,000 levels achieved in the US and South Korea." ("Peak Steel?", Commodities Weekly, Feb. 12, 2015).
The issue, though, as they themselves concede, is that such comparisons with historical norms may not capture the uniqueness of the Chinese steel story.
No other country has unleashed the amount of concentrated infrastructure spend as China did at the height of the Global Financial Crisis.
New cities, new roads, new railways, new airports were built at an extraordinary rate. All needing steel.
Chinese steel production capacity exploded to meet that government-stimulated demand.
This has not been a normal developing economy growth story. It was an extraordinary strategy to immunise Chinese growth from the manufacturing contraction that was gripping the rest of the world.
And it worked. Up to a point.
Because after the binge comes the hangover.
Ghost towns of empty residential blocks attest to the exuberance of the property boom. As this previous driver of steel demand slows, the consequences of past excess are mirrored in the zombie steel mills producing surplus product at a loss.
The fate of these two weakening pillars of the Chinese economy are inextricably entwined, not least through the shadow debt structures which are creaking ominously in both.
RUNNING OUT OF ROAD
CISA has been warning of the perils of excess steel capacity and production for a long, long time.
Although Beijing regularly mandates the closure of older capacity, particularly in the capital city's most-polluted neighbouring provinces, such cuts have done little to stop the steel juggernaut.
CISA estimates total steel-making capacity still stands at around 1.2 billion tonnes.
The resulting margin pressures have been extreme and the sector is surviving in significant part thanks to those massive exports.
The authorities are trying to stem the outbound tide, most recently in the form of cancelling rebates on some boron-steel exports.
But they daren't risk turning off the export safety valve completely for fear of the possible consequences on such a core part of the Chinese economy.
The juggernaut, it seems, will be allowed to thunder onwards.
But if Chinese demand is even close to peaking, the chances of the juggernaut running out of road are rapidly rising.
That's obviously very bad news for China's steel-makers.
And it's obviously very bad news for the world's iron ore producers, who are already engaged in a brutal pricing war.
The displacement of higher-cost iron ore supply was always going to be a messier affair than the big Australian and Brazilian producers hoped.
Falling oil prices, feeding through to a lowering of the global iron ore cost curve, have made it messier still.
Peaking demand growth in China is going to make for a long, bloody war of attrition.
And that's bad news for the non-steel world too.
The entire steel supply chain may be at risk of a deflationary spiral.
As iron ore prices fall, costs fall for Chinese steel producers, incentivising them to produce more, which means steel prices fall.
Without any improvement in domestic demand, that means they export ever cheaper steel in ever greater quantities to everyone else.
Or, to quote Natixis again: "when policy-makers around the world worry about pervasive global deflationary forces, this 'early' maturity of Chinese heavy industry may be one of the more significant factors at work."
"Peak steel", it seems, could be everyone's problem.
Source: Reuters
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