G-20 Summit Positions Steel Industry in the Spotlight

G-20 Summit 2016

Market turmoil, ‘supply side reform’ and the Hangzhou G-20 Summit have put the future of the steel industry in the spotlight. However, we think it’s far too soon to write obituaries for growth in Chinese steel production.

China’s current rise is arguably the most important economic development since the settling of America’s west in the 1800s. While in the US, immigrants fled the crowded eastern cities to ‘go west’, and in the process built the world’s first truly integrated continental scale economy, in China people are leaving the rural western interior to find employment in the crowded cities of its eastern seaboard.

The pioneer’s wagon was the symbol of the US’ westward megatrend. China’s version is the Shanghai skyline, viewed from the Bund, all eye catching neon and towering skyscrapers. And that image is intimately associated with steel.

However, after almost three decades of uninterrupted growth, Chinese steel output has actually declined of late, prompting many to suggest that production has peaked.

We’re not convinced. We expect Chinese demand will rise modestly over the next decade, while the composition of end-use demand for steel will change as the economy evolves.

Despite the frenetic production growth rates of the period up to 2013, the accumulated amount of Chinese steel stock in use has considerable room to grow.

Roughly half of China’s steel currently goes into construction. The slowdown in the property sector was a major factor for the market weakness in 2015. As the rate of urbanisation has slowed, and will continue to do so, building rates aren’t going to be what they were. Even so, over the next 20 years, China’s urban population is likely to increase by almost another quarter of a billion people; and the rising middle class will be looking to upgrade to bigger and better apartments, sitting above more extensive underground car parks – meaning what’s built (and renovated) will be more steel intensive.

China’s steel use will also reflect its maturing economic structure and ‘consumerisation’, symbolised by increasing car ownership. In Japan, and the US, the automobile sector accounts for around 20% of steel use. Those figures compare to around 7% in China today. We also anticipate that China will become more internationally competitive in the machinery industry, which is a steel hungry sector. In aggregate, these trends are expect

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Obineme Ndubuisi Micheal, Technical | Creative and Senior News Writer, covering the entire value chain of the Energy Industry. Our publication covers the entire value chain of Renewable/Energy, Power, Mining, To get in touch, email: oilandgasrepublic@gmail.com

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