Posted on 17 Dec 2021
China's steel production, demand to drop in CY'21-22
China’s crude steel production and finished steel demand both are expected to drop in CY’21 and CY’22, as per the government think-tank, China Metallurgical Industry Planning and Research Institute (MIPRI).
In fact, demand for steel and its chief raw material, iron ore, are showing a decline for the first time in five years.
Finished steel demand from the world’s largest consumer of the commodity is slated to drop -4.7% to 954 million tonnes (mn t) in CY’21 and further by -0.7% in CY’22 to 947 mn t.
Crude steel production, the think-tank forecasted, will fall -2.3% in CY’21 to 1,040 mn t and by -2.2% to 1,017 mn t in CY’22.
Other input materials to see demand decline
As a consequence, demand for all steel related raw materials is also forecasted to drop in both years under review.
For instance, iron ore demand is expected to drop -2.8% to 1,364 mn t in CY’21 and by -4.5% to 1,302 mn t in CY’22.
Imports of iron ore are likewise expected to drop -3.4% to 1,130 mn t in CY’21 and -4.4% to 1,080 mn t in the next calendar.
Demand for coking coal is forecasted to dip in tandem by -0.2% to 1,040 mn t in CY’21 and -2.9% to 1,010 mn t next calendar.
Met coke, pig iron output
With crude and finished steel production and demand slated to drop, production of inputs like pig iron and met coke will also see a drop. MIPRI forecasted that met coke output in both years will fall. In CY’21, it is expected to dip -0.2% to 470 mn t and in CY’21 by -2.1% to 460 mn t. Pig iron too will possibly see a drop of -2.8% in CY’21 to 863 mn t and by -4.5% in CY’22 to 824 mn t. The pig iron output has been inferred at a steel:pig iron ratio of 0:83 in CY’21 and 0:81 for CY’22.
Factors that may impact China’s steel consumption and production
- Stricter emission norms: Since carbon peaking and carbon neutrality are China’s long-term goals, the measures to reduce emissions, going forward, will only intensify. On the one side, where carbon peaking requires efficient coal power units to generate more electricity, power supply in China, on the other hand, may decline next year. And, the steel industry, the biggest energy consumer, will be the first to take a hit. Hence, it is expected that the growth in China’s domestic steel production will continue to be limited which will further calibrate the balance between supply and demand.
- High energy prices: In CY’21, especially in the second half, global energy and electricity prices rose due to strong demand and supply constraints. This trend is expected to continue into CY’22. Soaring energy prices, especially of thermal coal and natural gas, will inevitably drive up power generation costs, and thus electricity prices. In addition, refined and fuel oil prices will also see a substantial increase.
- Tight raw material supply: Furthermore, it is expected that in CY’22, the supply of coking coal, coke, and scrap may remain tight. With countries focusing on reducing carbon emissions, emphasis on the EAF method of steel-making will gain prominence, making scrap a sought-after and costlier material.
- Mixed outlook on real estate: The growth rate in China’s real estate investment has declined, especially in H2. Investment in real estate, which recorded a 10% y-o-y growth in May’21, declined by 5.5% y-o-y in Oct’21. In Jan-Oct’21, infrastructure investment increased just 1% y-o-y whereas on a monthly basis, the growth rate remained negative for six months in a row which became a major factor in China’s weak domestic steel demand.However, as per Lange Steel, in CY’22, fixed asset investment is expected to pick up. Real estate and infrastructure investment is expected to rebound with relaxation in fiscal policies. The growth in infrastructure investment is expected to rebound to about 4% next year which could reduce the rate of de-growth in steel consumption.
- Global inflation to sustain: Global inflation, which began to rise this year, will continue into CY’22. Severe global inflation and contraction of monetary policies by the central banks around the world will curb economic growth. Notably, in Oct’21, the International Monetary Fund lowered its global economic growth forecast for CY’21, slightly lower than the 6% forecast in Jul’21. The uncertainty of global economic recovery has created uncertainty on China’s steel demand.
- Shipping costs to stay high: With vessel availability scarce, hiring charges will remain on the higher side. Logistics and shipping costs will remain high in the coming year, which will make raw materials expensive.
Steel impact
The above factors will push up production costs of steel and create a case for raising finished prices.
International trade, however, is expected to regain momentum in CY’22 with an expected ease in the US-China trade war.
Source:SteelMint
