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Chinese Steel Industry in the Red.

China is currently the largest producer, exporter, and consumer of steel worldwide. Despite this position, its domestic steel industry has seen considerable trouble over the past couple of years as environmental problems and inefficient management affect potential output. On the international market, China has become the biggest exporter in the world, but is facing push back from developed countries angry about unfair competition.



China produced nearly half (48.5%) of the world’s steel in 2013, amounting to about 780 million tons. Its industry is dominated by state-owned companies, the largest three being Hebei Iron and Steel, Baosteel, and Wuhan Iron and Steel with an additional three making up six of the top ten steel producing companies worldwide.



Domestic Market

The majority of steel produced in China is still consumed domestically with the vast majority used by the construction sector, driven by China’s massive urbanization. However, with new predictions every day about the state of China’s housing market, it’s possible that this outlet for steel is already at its peak. Beijing has recently tried to offset the decreased growth in demand for steel with a moderate stimulus package (1.4 trillion yuan) in new railways, bridges, and other infrastructure, but this has not prevented significant slow down over the past few months.



International Market

As growth in domestic demand shrinks, Beijing is pushing more of its steel abroad, and now facing accusations of undercutting prices creating unfair competition. China exported nearly 58 million tons of steel in 2013, a 13% increase over the year before. April had the highest export of Chinese steel globally in the past six years, eliciting a preliminary 159.2% tariff from Washington on imported Chinese steel. Massive exporting from China led to at least 17 cases of anti-dumping regulations being introduced against it from economies around the globe including the US, the EU, Japan, and even Taiwan.



Before the financial crisis, 25% of Chinese steel exports went to North America and the EU, but as with many other industries, China is now having to look to developing regions to push its surplus steel. The past few years have seen significant increases in steel exports especially to ASEAN countries and Africa.




The majority of Chinese steel exports are still in low-cost construction steel, but industry leaders clearly understand the need for a change and are attempting to move into more special steel production. Last year the China Iron and Steel Association urged Chinese steel producers to favor higher value-added products over construction grade steel as the global demand for common steel continues to fall. China’s special steel industry is still in the growth stage, unable to compete with global leaders such as Sweden, Germany, and Japan, but with moderate growth each year. There are several large-scale special steel enterprises in China now, such as Baosteel, CITIC Pacific, Dongbei Special Steel, Tiangong International, and Shanxi Taigang Stainless Steel.



Stumbling blocks moving forward

Faltering growth in the past couple of years seems to indicate that this is one industry which state ties are holding back as the government emphasizes employment over profit. While these companies are able to receive increased financial backing, they also have more requirements placed on them that are now proving detrimental.



Government requirements have led to serious overproduction and ultimately created an industry that has seen grave losses over the past few months (the culmination of a longer-term decline of the past couple years). According to the China Iron and Steel Association, China's largest steelmakers posted a combined loss of 2.3 billion yuan in the first quarter of this year. Additionally, China is the only emerging economy forecasted to have a drop of growth in demand for steel this year according to the World Steel Association predictions from October. China’s overcapacity is now estimated to be as high as 300 million tons (330.69 million tons), nearly twice the total output of Europe last year, and expected to grow this year.



Another reason for overproduction is that Chinese steel companies have recently gotten themselves into some financial trouble purchasing large stocks of iron ore beyond what they can use. Many of these companies use the commodity as collateral for credit. However, as production slowed and the price of iron ore fell over the past several months, steel production companies were left with mounds of surplus ore that either had to be used or sold at a loss.



Environmental factors have also negatively affected China’s steel industry as the government in Beijing tries desperately to improve air quality without disrupting economic output. Each ton of steel produced in China requires about 0.69 tons of coal in energy consumption, meaning that China’s steel industry by itself consumes about 7% of the world’s coal. As a result of the industry’s affect on air quality, Beijing has ordered 53 factories producing steel, heavy machinery, and chemicals to move out of the city this year.



As the global market changes and developed countries require less and less common steel, China’s steel industry may require a major overhaul in production methods if it wants to maintain its current level of exports. Because of its state affiliation, its success is vital to employment and the continued development of China’s infrastructure. Unfortunately, it is precisely these heavy requirements that are impeding its flexibility and efficiency.





User: old handTime: 2014-07-16 10:05:28
Steel production growth dropped sharply from 10.3 per cent in December to 4.9 per cent in January and February, led by the drop in housing construction. Growth has picked up moderately since then but remained weak at 6 per cent in May. A recovery in steel production would mean that stimulus is having an impact and construction activity is poised to pick up.
User: batty5Time: 2014-05-29 17:59:58
Things are only going to get worse for these companies since the Government seems serious about pollution. Mills are under ever increasing pressure to reduce emissions of sulfur and other pollutants, and so are demanding high-grade iron ore with fewer impurities, generally from abroad. Consumption of steel grew 2.6 percent in the first two months of this year, compared with 9.8 percent a year earlier.
User: zhaoliTime: 2014-05-27 14:59:02
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