Global Steel Market Scenario – Australian DIIS
China' steel production boosted by high prices and strong demand -Australia's Department of Industry, Innovation and Science' latest Resources and Energy Quarterly said that China's steel producers were buoyed by high prices and margins in 2017. Higher prices reflected capacity cuts, the closure of illegal induction furnaces, and stockpiling on concerns over supply shortages (stemming from production restrictions over winter). Despite these supply constraints, Chinese steel output grew by 5.7 percent to reach a record 832 million tonnes in 2017, representing 49 per cent of world steel production. The growth reflects higher rates of capacity utilization, in response to high margins, and the replacement of previously unreported production (at illegal induction furnaces) with new production (captured by official statistics). Higher output was absorbed by strong domestic demand, due to robust industrial production growth and stimulatory government spending and policies. Capacity reductions are expected to continue, with another 30 million tonnes of capacity to be cut in 2018. Increasingly stringent policies to address air pollution are also expected, such as the extension of production restrictions in the Hebei province, and a repeat of production restrictions over the winter period, when air pollution is particularly intense. These factors are not expected to translate to substantial declines in total annual production in 2018, which is forecast to be broadly steady, due to higher capacity utilisation outside of the winter months. China's steel consumption is also forecast to hold steady in 2018. Both industrial output and fixed asset investment growth accelerated in the first two months of the year, by 7.2 per cent and 7.9 per cent respectively. However, the pace of growth in China's land and home sales, and in newly started residential buildings, slowed over the same period. The impact of government efforts to cool the property market, including purchasing restrictions, caps on prices on new properties, and increased down payment requirements, saw property prices moderate in 2017. The property market is expected to remain subdued in 2018, weighing on steel consumption.
China's steel production projected to gradually decline - Over the medium term, steel production is projected to flatten and gradually decline at an annual average rate of 0.5 per cent, to reach 805 million tonnes in 2023. This would reduce China's share of global steel production from 49 per cent in 2017 to 45 per cent in 2023. The decline in steel production is expected to be driven by moderating consumption, and a continuation and consolidation of current government policies. These policies include stricter environmental regulations, supply-side reforms, a shift in focus from quantity to quality and reducing debt. China's steel consumption is forecast to decline at an annual average rate of 0.5 per cent to reach 742 million tonnes in 2023, largely driven by an expected slowdown in urban residential construction and infrastructure investment. Residential construction is expected to be weighed down by a projected slowdown in urban population growth and the effects of ongoing government policies to limit speculative investment in the property market. The pipeline of infrastructure projects is expected to thin, as the government shifts its focus away from investment-driven growth. Growing demand from other sectors, appliances, automobiles and machinery, and a modest increase in steel exports is expected to partially offset the decline in construction activity. Steel exports decreased by 31 per cent in 2017 to 76 million tonnes, their lowest level in four years. Declining exports have been driven by higher prices, making China's steel products less competitive on export markets, and to a lesser extent, the growing suite of trade barriers around the world. Nevertheless, exports are expected to pick up towards the end of the outlook period, supported by new trade routes opened up by the One Belt One Road Initiative and to meet growing demand from emerging economies, particularly in South East Asia. The projection for China's steel consumption implies a levelling in China's steel intensity, the volume of steel consumed per person, and results in China following a different trajectory to Japan or South Korea. Unlike these countries, which consume large amounts of steel in industries like automobiles and shipbuilding, China's development path is not expected to follow the same scale of steel-intensive export growth. There is substantial uncertainty regarding the projections for China's steel sector. Government policy will continue to drive the outlook for steel, as authorities continue to adjust policies to manage a smooth transition while restructuring and reforming the economy.
India set to become the second largest steel producer in 2018 - India's steel production grew by 6.2 per cent in 2017, to 101 million tonnes, driven by the ongoing expansion of steel-making capacity. Domestic consumption, which grew by an estimated 5.2 per cent, has lagged production, in part due to the implementation of economic policies and reforms, such as demonetisation and the implementation of the GST. India's steel exports have surged as a result of subdued demand. India's steel intensity was an estimated 73 kilograms per capita in 2017, well below China's 555 kilograms per capita, suggesting substantial potential for growth. Steel consumption is projected to grow at an annual average rate of 6.3 per cent to reach 140 million tonnes in 2023, implying a steel intensity of 97 kilograms per capita. India's steel consumption will be underpinned by rapid urban population growth, substantial government investment in infrastructure, housing and urban development and the expansion of the manufacturing sector. The projection also reflects the expected impacts of structural reforms and other government policies, such as bank recapitalisation (an injection of capital into India's state-owned banks). These policies should improve prospects for economic growth and support the ability of state-owned banks to fund real estate, infrastructure and other steel-intensive projects. Steel production is projected to grow at an annual average rate of 6.8 per cent over the outlook period. India is forecast to overtake Japan to become the world's second largest steel producer in 2018, with production reaching 108 million tonnes. By 2023, India's steel production is projected to reach 150 million tonnes, representing 8.5 per cent of world production. The projections for steel production are lower than what is inferred in India's National Steel Policy 2017, which has targets for crude steel production to reach 255 million tonnes by 2030-31, implying an annual average growth rate of 7.4 per cent. Despite positive progress on political and economic reforms, the expansion of the steel sector faces hurdles from ongoing regulatory challenges and difficulty in accessing raw materials, land and finance. The September 2017 Resources and Energy Quarterly further explores prospects for commodities consumption in India.