Global economy
Fears of an imminent meltdown in China’s economy are overblown.
The pace of growth is likely to slow to about 8% next year, down modestly from the red-hot 9.1% gain that will be reached in 2004. Credit controls, imposed by Beijing in April to curb lending enthusiasm, are working, easing hyperactivity in some critical Chinese industries.

But construction increases continue unimpeded. While investment in infrastructure ... more transportation facilities, for example ... is welcome, there’s overbuilding of office and residential high-rises.
And regional officials are chafing at heightened central control. Concerned more about keeping their local businesses humming along than about inflation, local authorities and business owners want Beijing to ease credit restrictions. Odds are the central government will yield. Long term, that spells a lengthy adjustment period of dampened growth while excess building investment is worked off. But in the short term ...
There’s more risk of faster growth than of an abrupt slowdown.

Continued brisk demand for steel inputs is one of the results. China will keep sucking up huge amounts of scrap metal, coke, and coal to feed its booming domestic steel industry, squeezing global supplies.
That, plus consolidation of U.S. steelmakers, spells high prices through summer. Look for hot-rolled steel to sell for $740-$790 a ton, hitting the low end of the range briefly around the end of the year. Little change in prices of stainless and galvanized steel is likely.

Feeling the pinch: Makers of auto parts, appliances, furniture, plus construction and other steel-intensive industries. Only about half of small companies in those industries can pass along any higher costs, and those that do usually recover less than half their added steel bills. And there’s evidence that high steel prices are biting into construction: Plans to rebuild the S.F.-Oakland Bay Bridge, damaged in an earthquake, are on hold because soaring steel costs threaten to bust the budget.

U.S. economy
Steel prices won’t have much impact on overall U.S. inflation. Energy costs will push consumer prices up about 2.5% next year, about the same as this year and half a percentage point or so above 2003. The core inflation rate, which does not include energy and food prices, should climb about 2% again next year. Competition will muffle the impact on consumers of a somewhat speedier increase in prices paid by producers.

Energy
What is your business doing to ease the pain of energy costs? With oil likely to stay around $50 a barrel through summer, pushing up prices of fuel and materials, containing costs is paramount.
Are you conserving more? How? Turning down thermostats? Shipping less often to avoid fuel surcharges? Delaying expansion plans? Or perhaps you’re considering making more use of renewable energy.
We’d like to know. Please e-mail us at letters@kiplinger.com, write us using regular mail, or call our offices at 202-887-6462. Include your company’s location and the line of business you are in.

© 2004 The Kiplinger Washington Editors, Inc.