All Eyes on Steel

An interesting link, courtesy of Vox Day. Steel production, like most other commodities, is currently in free-fall:

Unsurprisingly, steel output in the U.S. also fell in February. The U.S. produced 3.8 million tons of steel last month, a decrease of 54.2 percent from February 2008, the World Steel Association says. Comparable declines were seen globally as world steel output fell 22 percent in February.

In the European Union, there were production drops of 31.6 percent in Germany, 35.7 percent in France, 35.7 percent in Spain and 39.9 percent in Italy. Brazilian steel production decreased by 39 percent last month from February 2008 totals, and both Russia and Ukraine saw steel output fall by 32.1 percent and 33.6 percent respectively.

This is all unsurprising, as demand for commodities has collapsed, so have prices and therefore supply. Although the drops are quite large in magnitude, this is consistent with an economic event of similar scale as the Great Depression, which I hope that by now we are all pretty much in agreement is what is going on. Then we come to a bit of an anomaly:

Iran and China were the only two countries who reported positive gains. Iran steel production gained 15.9 percent from February 2008 to 900,000 tons. China produced 40.4 million tons of February's overall world production of 84 million tons. The country reported an increase of 4.9 percent from last year's same-month total.

Are China and Iran really doing that well? Not so much:

Not all the steel, however, is being used. In fact, steel and other industrial products exceed domestic and foreign demand. "As of this month, about 30 percent of the nation's aluminum production capacity is idle, as is 20 percent of cement and plate-glass capacity and 70 percent of semiconductor production," according to China's industry ministry (via the Wall Street Journal).

To combat the surplus, the Chinese government invested four trillion yuan (about $585 billion) to boost construction of public works, thereby increasing demand for steel and thus reducing idle capacity. Along with the stimulus package, Beijing announced another plan in January for reducing steel overcapacity.

The plan indicates that "new capacity would be approved only in exchange for the closure of outdated production facilities," a separate Financial Times article says. The Chinese government also added that "within three years, it wanted to see 45 percent of the market in the hands of the top five steelmakers, up from 28.5 percent now."

So the Chinese are producing lots and lots of steel to sit around and gather rust just to keep people busy. That's the ticket: when you're in deep trouble, the proper thing to do is spin your wheels and waste resources. This is not helpful. It is wasteful. Not that the US can say much about it, given what we've been doing. Pot calling the kettle black, and all of that. But it is just one more indicator, at least to me, that China is not the capitalist paradise set to take over the world that mainstream economic opinion makes it out to be. Like most other nations of the world, it has decided that once in a hole, the best solution is to keep digging. Better prospects for growth than ours? Yes. Able to achieve today's US living standards within a generation or so? I doubt it. Someday? Maybe. I hope so.