By Kunal Bose
Being by far the largest owner of steelmaking capacity in the world and what automatically follows the biggest producer, consumer and exporter of the ferrous metal, China will perforce leave a significant impact on the global working of the industry in all situations. According to the OECD Steel Committee, the world steel capacity rose 57m tonnes in 2023, marking the sharpest increase in a decade to 2.498bn tonnes. Accurate capacity data about China may not be available since there are producers in the unorganized sector whose operation is enveloped in obfuscation. But even then a safe guess is the world’s second largest economy had steelmaking capacity of around 1.35bn tonnes by the end of 2023.
Armed with capacity of this order, China for the fourth straight year produced over 1bn tonnes of steel last year, almost identical to 2022 when global production remained unchanged at 1.888bn tonnes. In the face of slowing down of the economy manifest particularly in the construction sector taking toll of domestic steel demand, Chinese steelmakers turned aggressive in selling their products in the world market. Exports rose a robust 36.2m tonne year on year to 90.3m tonnes in 2023, a level not seen since 2016. In the past in 2015, China exported a record volume of 110m tonnes, a sharp rise from 91.3m tonnes the year before.
Besides dip in domestic demand, Chinese exports got a shot from tight international supply and competitive prices. Such large exports are inevitably disrupting international trade in the commodity and causing trade frictions. It will be recalled that there was a raft of antidumping measures by import afflicted countries in the wake of 2015 aggressive sales pitch by China. Steelmakers around the world, including the ones in India, as a result, became wary of China. The leviathan that China’s steel industry is will be producing over a billion tonnes in the next few years despite poor local demand to be left with no alternative but to offload much of surplus output in the world market with disturbing economic and political consequences for export targeted countries. Remember, steel, in spite of all the advances in technology, remains a highly labour intensive operation.
In the meantime, Chinese exports are undergoing structural changes with the focus gradually shifting to high value-added products. For example, 14m tonne of hot rolled coils in the first nine months up to September last year far exceeded that of whole of the record year 2015.The phenomenon is having disturbing consequences for steelmakers in advanced economies such as Japan. Despite being the world’s largest exporter, China also is an importer of steel products. Imports of 7.64m tonnes in 2023 marked a decline of 27.6 per cent over the previous year.
December average price of imports at $1,569.6 a tonne gives an idea of the kind of steel the country is still required to import. Tata Steel MD and CEO TV Narendran expresses concern that if Chinese steel product exports remain at last year’s level then that could bring pressure on “world steel prices impacting producer margins.” At the same time, he talks about a more balanced Chinese approach to production and demand. Expectations are that Beijing moves to infuse life to property and infrastructure sectors will improve demand growth prospects for the metal.
Besides exerting pressure on prices, high volumes of Chinese exports, according to Narendran, have environment damaging impact as these leave in their trail “significant carbon emissions.” He wonders if China exports of the current order are not at variance with the declared Beijing objective of progressively reducing carbon emissions. Premium available in the world market over domestic prices is one consideration for China to be a big exporter. But Narendran says: “There perhaps will be a bit more stability in China going forward, with potential production cuts or reduced exports due to because the prices they are exporting are not sustainable.” Chinese deceleration in steel production every month since December 2023 proves Narendran right. In the meantime, concerns about Indian imports of finished steel staying ahead of exports are leading local producers to seek intervention of New Delhi by way of safeguard measures against import surges in 2023-24. India with imports rising 38.1% to 8.3m tonnes in the past financial year turned into a net buyer of foreign origin steel, as its exports of finished steel were up 11.5% to 7.5m tonnes.
Indian producers are not comfortable that imports grew at that rate. In spite of this, New Delhi will not be rushed into building new barriers to imports in view of the continuing strong domestic demand. Indian use of steel rose an impressive 13% to a multi-year high 136m tonnes in 2023-24, the only country where demand continues to race ahead like that buoyed by focus on infrastructure and construction development. Automotive steel demand was also strong.
In contrast, Chinese steel demand is set to fall again this year. Narendran thinks gradual shift to investment-led growth from consumption-led growth in India is fuelling demand buoyancy for the metal. He and his peers in the steel industry in India are encouraged by budgetary allocation for the infrastructure sector going up by up to 30 per cent every year. At the same time, railways and gas pipeline development continue to receive significant investment. Thus, according to Narendran, “surge in activity across multiple steel-consuming sectors in India is a pointer to annual steel consumption growth expectation of at least 8 per cent.” As the world noticed in China in better times in the past, steel demand in India “will be ahead of GDP growth rate, which typically hovers here around 7-7.5 per cent,” says Narendran.
Considerations of economies of scale and new capacity that keeps on coming on stream will be constraints to ration production. Even then, S&P Global Commodity Insights says the challenge of addressing global oversupply and weak profit margins (the phenomenon is universal) will see China steel production slowing by 0.5 per cent this year. Mysteel China, however, pegs the country’s expected production squeeze at 0.3 per cent. In forecasts of this nature what is to be considered is whether Beijing will introduce additional stimulus measures to support the economy, which in turn could stimulate demand for steel. (IPA )
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