China's steel industry – Where is it heading?

Posted on 11 May 2015

Source: SEAISI
According to the China Iron and Steel Association (CISA), China’s steel output growth started to slow down in 2014. Crude steel output registered 823 million tonnes, an increase of 0.9% y-o-y. It is the lowest increase for the past 30 years. Crude steel output in the first two months of 2015 increased by 1.5% y-o-y to 131 million tonnes.

China’s apparent crude steel consumption declined by 3.3% y-o-y to 739 million tonnes in 2014, the first decline since 1996. By the end of 2014, steel stockpiles in China’s 22 cities registered 8.2 million tonnes, a significant decline when compared to the levels of previous years.

As for steel trade, China’s total steel export in 2014 rose significantly by 50.5% y-o-y to 93.78 million tonnes while import was 14.43 million tonnes, an increase of 2.5% y-o-y. Major destinations were ASEAN countries. Vietnam was the second largest destination for steel export from China, after South Korea. Philippines, despite its relatively small volume in domestic steel demand, has nevertheless become the third largest steel export destination for China in 2014. Thailand and Indonesia were ranked number 5 and 6 major destinations for steel export from China in the same year.

At the recent International Steel Market and Trade Conference in Shanghai, CISA projected that steel demand in China will continue to increase slightly as a result of positive growth in major steel consuming sectors. Automotive industry, including machinery will continue to increase in production, with growth projected to reach 3.3% in 2015. Railway, road and infrastructure are predicted to experience fast growth while construction of residential houses and buildings is expected to be stable.

According to China Steel Development & Research Institute (CSDRI), major concerns for China’s steel industry are chronic excess capacity and imperfect market competition. The Chinese government is taking a serious approach on changing policy to focus on controlling steel production capacity and improving fair market competition within the country. The emphasis on revising law and new standards on environmental protection and more stringent enforcement will be the new normal for the country.

As for the private sector, many of the companies are adapting themselves to the new policies and competition in the world market. Some have plans to build up strategic cooperation with foreign companies in order to improve management capability and to enhance marketing networks. Hebei Iron & Steel Group, for example, has embarked on strategic collaboration with POSCO and HARSCO in order to strengthen its energy and environmental protection capability and to improve management capacity. It has also bought a controlling stake in global steel trader, Duferco, in order to enhance its international market network.

The steel industry has been struggling with price competitiveness in the past few years. Some companies boosted up steel production and increased inventory level to achieve massive volume of steel for cheaper sales. However, this cannot last long. According to China National Association of Metal Material Trade, 75,000 out of the 150,000 steel traders have exited the market and only 30% of the remaining are able to maintain their operating level as before 2010.

China’s steel trading is, therefore, changing from ‘trade mode’ to ‘service mode’. Steel retail trading online is becoming more popular in China. It provides a one-stop service for steel trades, including necessary information flow, logistics, order registration, credit services, distribution services etc. The concept is to reduce cost and to provide customized services for buyers.

There are a total 170 online retail service platforms in the country and it is expanding. Steel online retailers are still exploring and solving the bottleneck problems. Major steel companies in China, such as Baosteel, Shagang Steel, Hegang Steel, Angang Steel, as well as traders, logistic companies, stockists and information research providers have all set up their own online platforms.

It is not a matter of how much China can produce, but it is how fast they can sell.

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