Chinese steel industry fascinated the globe when it boomed; it’s fascinating all now at what is being called its peak. And things are supposed to go downhill after reaching their peak. If that’s not what’s happening in China’s case, as apparent from its slow but definite growth, is it really the peak? The Chinese steel industry doesn’t seem capable of a downtrend. That’s the fascination all about.
With technological advancements, China grew to be the largest steel producer and consumer in the world. Now, it accounts for nearly half of the global steel production. Quite understandably, the recent fall in GDP growth rate of the country, to 7% in the first quarter of 2015, has got the global steel industry concerned. The reasons that stand by the downfall in GDP growth are stuck up infrastructure projects leading to low domestic demand for steel. However, even as demand declined, with numerous Chinese blast furnaces unable to shut down operation, the number touched 822.7 mnt in 2014, and doesn’t seem to be slowing down as months go by in 2015. In fact, certain iron ore mining giants are pegging China’s steel production at 1 bnt by 2030 and are planning their own production in line with it.
The surplus produce has been finding its way out as export. Falling domestic demand led China to sell 51% more steel at 93.76 mnt in the world market in 2014. Chinese steel export to India increased by as much as 232% to 3.6 mnt in FY15. Europe, US, Australia and Korea too are finding steel import from China to hem excessive and insufferable, leading them to initiate several anti-dumping actions. China, however, remains unperturbed and is defensive against such actions, with authorities asserting competitive prices as the reason for increased exports.
Steel demand shrinking at its home and economy growing at the slowest pace in past six years, China’s steel output is hitting levels beyond critical. The surplus steel being exported from China is set to pull down global steel prices, which only began to show some improvement recently. Countries like India, who become the recipients of China’s excess steel are worried about their domestic steel scenario.
Meanwhile for China, it seems not the steel peak, but the environment situation has been the more pressing concern. The Chinese government is viewing its economic slowdown as an opportunity to decrease its carbon footprint by re-sizing its steel industry. The country’s need for steel production to fall in pace with slowed demand sits right in the center of President Xi Jinping’s outlook for China moving ahead as a medium growth rate economy, the ‘new normal’. Although, consolidation of the industry by 2025 is on Beijing’s agenda, local steel mills do not seem to be thrilled about the idea. As per sources, the nation’s consolidation plan aims at 60% of its 1 bnt steel production be controlled by the 10 largest companies. While the government and the industry worked in tandem during the boom, the shift in government’s plan sits in distaste with the industry. The government has also opened its steel sector to foreign investment, a move that has seen few takers so far.
While China puts efforts to stand by its steel industry amid dumping allegations, increasing trade frictions and economic slowdown, the country’s local steel makers cannot be entirely blamed of being inconsiderate towards the matter of consolidation and not bringing production in line with consumption to curb excess exports. After all, the mega Chinese steel industry hasn’t been built to support dynamic shifts and turns. As such, the country’s envisioned solution – the economy entering a ‘new normal’, a phrase adopted to reflect a push to manage a slower expansion- is as fascinating as its woes.