China Steel Stocks May Be Rising, Steel Market Intelligence Says

Steel inventories may be rising in China, the world’s biggest producer of the metal, as economic growth slows and output climbs before potential power cuts, Steel Market Intelligence said.

Goldman Sachs Group Inc. today cut its forecast for Chinese gross domestic product growth in 2011 to 9.4 percent from 10 percent. GDP gained 9.8 percent last year, according to government figures. The reduction underscores increasing concern among investors about the effect of Premier Wen Jiabao’s efforts to curb credit and rein in inflation in the world’s fastest- growing major economy.

“Logic would dictate that there are invisible Chinese inventories piling up ahead of cutbacks, which worries us about the direction of the global market,” Michelle Applebaum, managing partner at Chicago-based Steel Market Intelligence, said in a note yesterday. She cited rising steel production in the country, a weakening economy and possible power rationing this summer.

China may face an electricity shortfall of 30 million kilowatts during this year’s summer peak that might reduce industrial output by 3.6 percentage points, analysts including Lu Yanjin at Industrial Securities wrote in a report on May 20. The country made about 47 percent of the world’s crude steel in April, according to the World Steel Association.

National steel production rose 9.1 percent from a year earlier to 232.6 million metric tons in this year’s first four months, according to the China Economic Information Network.

To contact the reporter on this story: Alistair Holloway in London at aholloway1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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