A worker welds steel bars at a construction site for a new train station in Ningbo, Zhejiang province, December 6, 2012. Annual growth in China's factory output, investment and retail sales may have gained pace in November thanks to recent pro-growth policies, a Reuters poll showed, reducing the chances for further policy support as inflation picks up. REUTERS/China Daily (CHINA - Tags: BUSINESS CONSTRUCTION TRANSPORT TPX IMAGES OF THE DAY) CHINA OUT. NO COMMERCIAL OR EDITORIAL SALES IN CHINA
Home working: China has shifted the emphasis to a model based on domestic demand © Reuters

Plunging demand for steel in China has pushed prices in some markets as low as the cost of cabbage, as worries mount that annual steel consumption may shrink for the first time in 19 years.

Some grades of rebar, a steel product widely used in construction, fell to Rmb2,600 ($424) a tonne in northern Chinese markets this week, according to prices on industry website SteelHome – equivalent to the retail price of cabbage.

Chinese steel consumption has been bolstered for years by the boom in demand for the refrigerators, supermarkets, train wagons and greenhouses that now allow Beijingers to enjoy green vegetables all winter long. But that demand is falling sharply as China’s economic growth peaks.

Meanwhile, cabbage is not the ubiquitous product it one was. Trucks laden with the vegetable no longer lumber into Beijing in the crisp autumn days, and few residents stack them in their stairwells in preparation for the cold winter.

The drop in steel demand “is a long-term trend”, said Li Xinchuang of the China Iron and Steel Association, which represents the nation’s largest mills. CISA data show steel consumption dropped in both July and August compared with the previous year. Mr Li said the decline continued in September.

The fall in steel consumption in the third quarter largely reflects slower housing construction. A similar drop this quarter would make 2014 the first year consumption has shrunk since 1995, when the Chinese economy was recovering from a bout of inflation.

“All the indicators we look at show the fourth-quarter economic recovery is unlikely to be strong,” said Song Chunlei, vice-director of steel consultancy LGMI in Beijing. He said mills in Tangshan, the heart of the Chinese steel industry, are already planning output cuts for the rest of the year.

Gross domestic product data for the third quarter, to be released next week, are expected to show the weakest quarter since early 2009, when China was still stung by the global financial crisis. But a shift in economic activity to the less steel-intensive services sector will mean steel and other heavy industries will underperform the broader economy.

Ballooning steel exports are another sign that China’s mills are producing more than the country can consume. Exports reached a record 8.5m tonnes last month as traders sought profits in other markets. Steel exports for the first nine months of the year are up 39 per cent.

Steadily dropping global prices for iron ore, the main ingredient in steel production, have also lowered costs for mills and allowed them to sell steel more cheaply. Average steel prices in China have dropped 13 per cent this year.

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