Weak world economy weighs on steel export orders

China's overseas steel orders slumped in April, and the situation will worsen further this month because of the gloomy global economy, analysts said.

The export orders index for the iron and steel industry in April was 45.8, a drop of 17.4 points from March, according to the purchasing managers' index of the iron and steel industry, which was released by the Lange Steel Information Research Center on Monday.

"Steel producers and traders suffered from the reduction of overseas orders in April," said Zhang Lin, senior analyst at the research center.

"The reduction means that China will export less steel in May, and the number of domestic orders has also dropped."

Steel exports in March reached 5.03 million metric tons, up 48 percent month-on-month, according to customs data. But that pace won't continue in May.

On the domestic front, the markets for coal, nonferrous metals and cement have been recovering in recent months, so the steel industry will have its boom season in the second and third quarters - provided that incentive policies are carried out and the economy doesn't weaken, Lange said.

"If the European debt crisis doesn't get worse, China's exports will see growth, especially in the field of mechanical and electronic products, which will promote the growth of steel exports indirectly," said Chen Kexin, senior industrial analyst.

However, he said, if the European debt crisis worsens, it will depress China's exports, which will influence the prices of steel and iron ore.

Meanwhile, the domestic steel industry faces a simultaneous increase in output and inventories, which may depress prices.

Crude steel output in March was 61.58 million tons, up 3.9 percent month-on-month.

According to the China Iron and Steel Association, the daily output of crude steel in early and middle April was about 2 million tons, which is relatively high.

Figures show that by the end of April, inventories among large steel makers in 29 cities had risen 1.71 million tons year-on-year, which indicates that the oversupply situation persists in China.

Chen said if crude steel output remains high, the domestic market will be very volatile.

Property prices play a role, too, and many analysts believed that housing prices are set for a further decline of 10 percent or more amid government curbs on the sector.

Chen said if that happens, the "collapse" of the real estate industry will influence many important industries including metals, cement, electronic appliances and logistics.

"The possibility has affected the confidence of steel traders, investors and buyers," he said.

"Thus, many of them are delaying purchases".