China's steel sector: Growing or Stabilizing

Posted on 10 May 2012

Source: SEAISI
World Steel Association’s latest forecast is that China’s steel demand growth rate will maintain at 4% in 2012 and 2013. This is a downward revision of the forecast made earlier by the Association in October 2011.  Macquarie has also done a survey of the Chinese steel market and pointed that in the short term; China’s steel demand will continue to strengthen, driven by the strength in construction and infrastructure. The survey revealed further evidence of a growing demand in the two sectors. Traders and mills have reported rising orders from construction and infrastructure. However, while demand seems to be buoyant, there is a concern that the supply response has been too strong. Inventory levels at the mills are arising but the decline in inventory at traders has been slower than normal.

Source: Macquirie Steel Sector Survey, April 2012

According to Baosteel, in its presentation at the CISA Conference in Shanghai, China’s economy has gone through over three decades of rapid growth and the trend is moving downward since 2011. Average annual GDP growth rate is predicted to be moving downward from 9.9% for the period 1995-2010 to 8.6% in 2011-2015 and is expected to contract further to 7% between 2016 and 2020.

Interestingly, Baosteel has mentioned changes in demand structure of steel in China. Apparently, China’s demand of long products declined from 58% of total steel demand in 2000 to 46% of total steel demand in 2010. Meanwhile, the proportion of plate demand to total steel demand increased from 35% in 2000 to 47% in 2010. 

One of the major steel users in China is the automotive sector. The manufacture of automobiles in China has increased rapidly over the last ten years. According to the Chinese Association of Automobile Industry, the number of automobiles produced in China registered 234,000 units in 2001, accounting for 4.2% of global automobile production, whereas the production in 2010 registered 1.83 million vehicles, which accounted for 23.5% of global output. It is expected that the automotive production in the country will increase continuously. It is also expected that China can boost its export volume of automobile and parts by 20% by 2015.

Shipbuilding, the largest steel plate consuming sector in China, has grown rapidly in the last six years. According to the Shanghai Association of Shipbuilding Industry, ship production in the country grew from approximately 10 million DWT in 2004 to nearly 80 million DWT in 2010. China’s new ship orders proportion compared to the global volume increased significantly from 18% in 2005 to 46.5% in 2011. Hand-held order volume in China registered 16.3% of global volume and expanded to 44.8% of global volume in 2011.

Home appliances in China also registered a continuous growth rate over the last ten years. According to the China Household Electrical Appliances Association, air conditioner production increased significantly by 18% y-o-y in 2011. Meanwhile, production of refrigerator/ freezer and washing machine rose by 6% and 8% in 2011, respectively. Export market for home appliances in China has expanded strongly by 17.5% in 2011. However, it is predicted that the demand in the appliances sector in China will level off in 2012.

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