Message from Secretary General_March 2016

Posted on 20 April 2016

Source: SEAISI
The recent uptick in steel prices has brought some relief to the global steel industry which had been struggling to cope with record low prices of steel products through much of 2015. The turnaround has been largely attributed to the impact of the stronger domestic steel prices in China, which have also lifted the country’s export prices.

The steel price recovery in China came about following measures unleashed by the Chinese government to ensure the country meets its target of 6.5-7% growth for the year. The reduction in the capital requirements of banks, the support measures for the construction sector and the potential impact of production stoppages to coincide with the horticultural show in Tangshan in Hebei province have all contributed to the improved sentiment, leading to the adoption of more aggressive pricing approaches by steel mills to improve margins.

While the positive signs are welcome, the big question on most people’s mind is can the price rally be sustained? Many people are of the opinion that the current uptrend is mainly sentiment driven. The macroeconomic fundamentals have not really changed with China still facing a structural slowdown in the country’s construction sector and over capacity in steel production remaining a serious threat.

For the steelmakers in ASEAN, while the improved steel prices help, there is still no letup in the influx of steel exports from China into the region.  For  the  first  two  months  of this year, China’s steel export volume to the world dipped 1.3% year-on-year to 17.85 million tonnes. However, China’s steel exports to ASEAN continued to surge, increasing 3.1% year-on-year to 5.35 million tonnes in the same period.

It is in the light of the above developments that a delegation from the ASEAN Iron and Steel Council (AISC) travelled to Foshan in Guangdong province of China in late March to attend the 14th International Steel Market and Trade Conference and to hold its annual dialogue with the China Iron & Steel Association (CISA), hoping to get a clearer picture of the steel situation in China and the outlook for the industry.

From exchanges with Mr. Wang Liqun, Vice Chairman of CISA and other senior officials of CISA, the following observations are made:

  1. Growth rates of China’s major steel consuming sectors, including real estate, infrastructure, machinery and shipbuilding declined in 2015 and the situation in 2016 is not expected to change significantly. All sectors, with the exception of automotive, are projected to experience a slowdown in growth rates. The automotive sector, however, is expected to see a 2.9 % year-on-year expansion in 2016. With that, CISA estimates that total steel demand in the country for the whole of 2016 will fall 4% year-on-year to around 646 million tonnes.
  2. Based on the trend of exports in the first two months of 2016, CISA expects the volume of China’s finished steel exports to continue to decline on a year-on-year basis over the next several months. CISA also expects a similar pattern of drop in steel export volume to ASEAN over the same period.
  3. On the Chinese government’s plan to eliminate 100-150 million tonnes of obsolete steel production capacity in the country over the next five years, CISA indicated that the central government will not  identify  the  specific  enterprises for closure but will leave it to the local governments to do so basing on the actual situation in each region. However, the central government will provide financial incentives for the resettlement of enterprises and will ensure that the elimination of obsolete capacities will not be followed by expansion of new capacities as had happened in the past.
  4. China’s One Belt, One Road (OBOR) drive is expected to benefit the steel industries in both China and ASEAN. Intensification of infrastructure construction activities will lead to an increase in steel consumption in both the regions. The OBOR drive will also push the major steel producing companies in China to explore investment opportunities in the ASEAN region which will create good prospects for joint ventures.

Whether steel export volume from China to ASEAN will really ease over the next few months as predicted by CISA remains to be seen. The same applies to the seriousness of the Chinese government in tackling the problem of chronic excess steel production capacity in the country.

«  Back

Copyright © 2016 SEASI Site. All Rights Reserved.