- China's steel exports are expected to
reach a record high in 2024, driven by excess production and falling
domestic demand.
- Analysts predict lower steel consumption
in China for several more years, affecting global steel prices and
consumption.
- The recent collapse of Jiangsu Delong
Nickel Industry adds to the challenges faced by the Chinese steel industry.
Would
it be an exaggeration to say that the world’s steel narrative is unfolding in China? Everywhere one looks, there
are steel industry
experts complaining about Chinese steelmakers unloading their excess steel
products.
Take
this report published at nikkei.com, which predicts that China could end the calendar year with a record-high export
total, somewhere over 110 million tons (MT). If true, this would be the highest
figure since 2015. As the report points out, the country already shipped 53 MT
of steel in the first half of 2024, marking a 24% increase over the same period
last year.
How China’s Falling Domestic Demand is Flooding Global
Markets
Some
say that this export volume is but a drop in the well compared to China’s
overall crude steel production, which hit about 1 billion tons last year.
However, this is the whole problem. When China’s domestic consumption falls,
the backlash affects steel industry players worldwide, all of whom have to start
competing against the cheap Chinese steel products flooding their markets.
China is number one in this race, producing over half of the world’s total
steel – 1.89 billion tons. As a result, any impact on its local steel
consumption will undoubtedly affect other countries.
Lower Chinese Consumption Could Continue for Several More
Years
Analysts
anticipate that steel consumption in China will decline to around 900 MT this
year. Indeed, some say that could be the case for the next few years. Wang
Yingsheng, chief economist of the China Iron and Steel Association (CISA),
shared this forecast at the Mysteel conference. Wang’s prediction indicates
that China’s total apparent steel consumption in 2024 may not go over 910 MT
and could even drop below 900 MT. However, it will undoubtedly be less than the
933.4 MT recorded for 2023.
For
the first six months of 2024, approximate steel consumption in China was about
479 MT, down 3.3% year-on-year. Despite several attempts by the Xi Jinping
Government to revive the economy, which could, in turn, mean a revival for the
steel and other metals sectors, there has been little headway. The real estate
market is still down, and from the looks of it, may not recover even in the
next few years. Infrastructure growth has also slowed, meaning less steel
consumption for roads, rails, etc. The only silver lining in all of this is a
minor degree of recovery in the manufacturing sector.
These
realities continue to put massive pressure on the profit margins of Chinese
steel mills. In fact, expectations are that the average profit margin on sales
will be even lower in 2024 than in the previous year.
Multiple Steel Industry Shake Ups Affecting Chinese
Sentiment
The
recent collapse of Jiangsu Delong Nickle Industry Co is the latest in a series
of debt crises hitting the world’s second-largest economy as growth slows.
Owned by renowned metals entrepreneur Dai Guofang and his family, the firm is
one of the world’s leading stainless steel producers. Jiangsu can produce over
9 MT of stainless steel per year, as well as other alloy products, from its
plants in China and Indonesia. However, many of its operations are struggling
due to falling nickel prices.
According
to this report, the company’s potential collapse could significantly
affect China’s manufacturing sector and the already troubled global nickel
market. Reflecting China’s overstretched industries, sources say that local
authorities have taken control of most of Delong’s plants in an effort to
recover debts and protect employees. The remaining factories are barely
operational, and major commodity traders have severed ties.
Weather Woes and Weak Demand for China’s Steel Industry
Then
there’s the adverse effect on the commodities and futures markets. Last Monday was one example.
That day saw iron ore futures prices fall over concerns of a persistently weak
steel market, worsened by adverse weather conditions in China. Also, many steel
benchmarks posted losses on the Shanghai Futures Exchange.
A Reuters report says some of the local steel trading associations now
want to delay the proposed quality standards for steel rebar, used in
construction. This comes after news of the after news of the rules’ planned
implementation on September 25 sparked inventory sell-downs. In mid-June, the
Government announced that the new standards would replace voluntary guidelines
put in place back in 2018. The associations now say they had not given enough
heads-up to work through existing stockpiles.
