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Morgan Stanley Sees China Peak Steel Now as Goldman Differs

Source: Bloomberg By: Jasmin Ng
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Peak steel arrives in China this year, according to Morgan Stanley, which forecast that production and consumption of the alloy will decline after 2015 as the second-largest economy matures. 
Steel output in the world’s top producer will peak at 806 million metric tons this year, drop to 801 million tons in 2016 and decline further to 795 million tons in 2017, the bank said in a commodities report on Monday. The comments reiterated remarks made by the bank’s analysts in a Dec. 16 note. 
China expanded at the weakest pace last year since 1990 amid a property market slowdown, as policy makers sought to shift the economy more toward consumption. The slowdown in the country that accounts for about half of global steel production contributed to a collapse in iron ore prices, which sank 47 percent in 2014. The drop was also spurred by a supply surge as Rio Tinto Group and BHP Billiton Ltd. boosted low-cost output. 
“We now expect 2015 to represent the peak in Chinese steel consumption and production,” analysts including Tom Price wrote in the Feb. 2 report. “While we do not expect volumes to collapse, we think growth will shift to negative as the country matures away from heavy” fixed-asset investment growth. 
Iron ore with 62 percent content delivered to Qingdao, China, advanced 0.4 percent to $62.45 a dry ton today. It dipped to $62.21 on Friday, the lowest price on record going back to May 2009, data from Metal Bulletin Ltd. showed. The commodity fell 13 percent this year. 
Goldman’s View 
Morgan Stanley’s view differs from Goldman Sachs Group Inc., which said Jan. 23 that while China’s crude steel output will drop this year, it’ll rebound from 2016. Production will be 807 million tons in 2015, 1.2 percent lower than a year earlier, before increasing to 819 million in 2016, 827 million in 2017 and 831 million in 2018, the bank said. Goldman was “pushing the date of peak production beyond 2018,” it said. 
For prices, the worst is likely over, Morgan Stanley said in the report on Monday, predicting that iron ore will average $79 a ton this year, the same forecast as in the Dec. 16 note. 
“Supply growth was the primary driver of lower prices in 2014 and we believe competitive supply growth will end in 2015 and high-cost operations will exit the market,” it said. 
Data released at the weekend reinforced readings of China’s slowdown, with a manufacturing gauge showing the first contraction in more than two years. The figure for the country’s steel industry was 43 in January from 44.1 in December, with numbers below 50 indicating shrinkage. 

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