Outlook for Chinese Steel Consumption
by China is a powerhouse when it comes to economic development, and the outlook for the nation’s steel demand is expected to remain stable in the near future.
China is clearly a powerhouse when it comes to global economics, and its economy is expanding significantly in contrast to most other developed nations. However, like any other nation, the latest Global Financial Crisis (GFC) has forced China to step back from its boundless expansion to reconsider a strategy of growth that will positively impact its ever increasing population; a strategy that establishes a safety net large enough to promote continuous growth. By looking at China’s recent response when it comes to steel imports, it’s clear that a new approach has been adopted – one where growth is slow but steady, allowing for quality over quantity.
The Last 10 Years
The steel industry has faced a lot of changes over the last decade, and China has been at the centre of it all. After the 1970s, global steel consumption remained at about 700 million tonnes for nearly 30 years, but now the number is more like 1.3 billion tonnes. The revival of the steel industry can be directly attributed to the surge in steel demand in China, causing steel companies to rush back into production. Over the last 10 years, the demand for steel in China has increased by 5 tonnes per year, which accounts for over 80% of the increase in global steel demand. Since China is the major player when it comes to steel consumption, the global steel industry has been adapting itself to serve these China-led changes.
Investment Heading Up Changes
The strong economic growth in China that has driven the changes in the steel industry was made possible by the introduction and success of strong economic policies that made share investment possible. As such a large powerhouse, China’s demand for investment in construction of infrastructure and housing was already large, and investment in the manufacturing industry increased significantly. The direction of share trading and investments will be a very important variable in forecasting China’s steel consumption peak.
Early 2020s
In the long term, however, the contribution of investment to economic growth in China must diminish. Recently, the Chinese government has decided that major economic efforts will shift from quantitative growth to sustainable growth simply because of increasing income disparity and the lack of dependable consumers. Instead, the change to domestic and demand-driven growth will most likely reduce the investment infrastructure, signifying the end of the industrialisation phase, and the beginning of a slow but steady growth phase.
A Shift in Requirements
The period of intense growth in China that required a high input of steel products is expected to slow, only to be replaced with the need for high value-added products. Where manufacturing investment was once purely devoted to infrastructure such as railways and buildings, more steel is now being used in the automobile industry. In 2020, it is expected that China will be manufacturing between 30 and 50 million vehicles, which is more than double the current production.
2028 Peak
The outlook for long-term economic growth based on the growth trajectory of major industries predicts that the demand for steel in China will continue to rise until it reaches its peak at 830 million tonnes in 2028. It is thought that demand will remain relatively high until 2020, and then will plateau once industrialisation and investment in infrastructure begins to wane. For a few years, the continued demand will be supported by the regions of China that are currently in the early stages of development, but this is expected to last only for so long.
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