The year 2015 may be specially remembered as a year of slowdown for the global economy, which grew by only 3.1% according to the latest IMF estimates. We have also witnessed a steep decline in prices of oil, metals and other commodities including foodgrains and services. Hardly any sector could cash in on the declining prices of raw materials, as inventories of finished products went up due to a fall in demand. Surplus capacities put an additional downward pressure on market prices. The only silver lining in such a depressing scenario, dubbed by a few as gradually approaching stagflation, was the growth projections in some of the emerging economies led by India. FY16 may clock a GDP growth of 7.3% or more for the country , now that growth in the previous year (FY15) has been revised downwards.
The Chinese economy that almost singlehan
dedly contributed to global growth in the past three years has started slowing down due to subdued domestic demand, as a fallout of a deliberate shift to consumption, away from investment. The thrust on light engineering, value-added metal, high-tech industries and IT-based service sectors and moving away from heavy engineering and gigantic structures are diminishing Chinese demand for most of the raw materials and creating stiff competition for many finished commodities, as exports from China at most competitive prices would seem to be the viable outlet for surplus capacities in these items.
It is interesting to see how the Chinese steel industry is planning to cope with the crisis of poor demand, massive surplus capacity, declining prices and negative profitability.
This is important, as Chinese strategy would have a huge impact on the global steel industry, the raw material scenario and trade. From the reports of Posco Research Institute and World Steel Association, it is seen that China has already eliminated more than 90-MT capacity in steel in 2010-14 and is planning to cut down an additional 100-150-MT capacities in the next five-seven years.
Financial Express .com