Posted on 22 December 2005

 

Source: SEAISI
The dynamics of China’s steel industry has been daunting the world.  The acceleration of demand has been shaking the globally traded steel products and raw materials.  Furthermore, the political economy of global steel industry will change more dramatically when China exports its steel products more offensively in the future.  For South East Asian steel producers, small volumes of China’s steel (e.g. narrow strip) would have made enough devastation.  Indonesia moves even further by preparing to file an anti-dumping petition against Chinese strip producers.  No wonder the South East Asian steel producers have long been questioning the move of ASEAN to expand AFTA (ASEAN Free Trade Area) by including China, India, South Korea, and Japan.

Needless to say, China is the largest steel producing country and has been growing at a remarkable pace.  Last year’s production was 272.5 million tonnes with CAGR in the last ten years at 11.4%.   The country’s steel industry  is expected to grow further as its GDP is to grow at levels of around 8% in the next five years.  However the declining share of Fixed Asset Investment (FAI) in GDP will dampen the growth of steel consumption. 

China’s Steel-Related Indicators

	2003	2004	2005e	2006f	2007f	2008f
GDP Growth	9.3%	9.5%	9.2%	8.8%	8.3%	8.0%
Fixed Asset Investment Growth	27.7%	26.1%	22.0%	16.9%	10.1%	7.3%
Steel Consumption (mil. tonnes)	237	265	309	330	348	364
Steel Production (mil. tonnes)	220	272	340	373	397	415

Source: World Steel Dynamics

CISA (China Iron & Steel Association) expects that in this year total production of crude steel will be 330 million tonnes while WSD’s estimate is 340 million tones.  CISA says that production for the period of January-August this year was increased at by 28%, far above the growth of consumption was at 18%.  The surge of future export seems inevitable and this will have enormous implications for the small and scattered South East Asia steel producers.

China’s government has released a steel industry development policy in July 2005.  The objective is to enhance the sustainability of the industry by improving quality, expanding product variety, saving energy, and increase efficiency.  The concentration of the steel industry shall be strengthened through structural adjustment, including acquisitions, restructuring, and the expansion of China’s key companies.  The policy for technology includes the minimum inner volume 1000 cubic meters, capacity of a BOF is at least 120 tonnes, and an EAF shall be 70 tonnes.  Furthermore, new steel plant in coastal ports shall have BF with volume of at least 3,000 cubic meters, BOF  with a nominal capacity of at least 200 tons, and have a crude steel production capacity of 8 million tonnes  per year.

In short, China’s steel industry has been showing an unparalleled development in terms of industry size and also performance.  Many of the companies (e.g.  Baosteel, Shougang, Wuhan, etc.) have been recognised as world class steel steelmakers.  The future may be brighter as a clear industrial policy has been released to guide the development.  The world will see that a more aggressive export of Chinese steel products is very much expected. This means, for South East Asia producers -as trade barriers and transportation costs from China to South East Asia more permitting- the future looks grim unless they can manage appropriate strategies to cope with industry dynamics.

 

 

 

 

 

 

 

 

 

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