Dec 23, 2020
Viewpoint: China’s steel output to rise beyond 1bn t
2021-01-14
China's steel industry is expected to keep growing in 2021 as a global supply deficit boosts its exports and Beijing maintains support for its housing and manufacturing sectors.
China is on pace to produce 1.05bn t of crude steel in 2020 after raising output by 5.5pc to 961.16mn t through November to meet record demand following its rapid control of the Covid-19 outbreak and sustained policy support for housing, infrastructure and manufacturing.
China's crude steel output is likely to rise to 1.1bn t in 2021 to meet demand from exports and domestic manufacturing and construction projects, supported by government stimulus measures, market participants said.
The country's appetite for steel provided support to global ferrous markets for most of 2020, absorbing excess iron ore from Europe, South Korea and Japan, and semi-finished and finished steel from India and Vietnam.
These seaborne flows have started to reverse as rebounding global steel demand outpaces mill restarts in Europe and the Americas. The steel supply crunch has sent the US Midwest hot-rolled coil (HRC) index up by 88pc since 1 September to $977/short ton ex-works on 22 December, or a $1,076/t equivalent. Northwest European HRC rose by 47pc over the same period to an $813/t equivalent level at €664.50/t ($809.90/t) on 22 December.
These are at wide premiums to the fob China HRC index at $685/t as of 22 December.
China's price discount has helped the country gain market share in southeast Asia as India, Russia and Turkey have shifted sales to the higher-priced regions. Chinese mills, instead of ramping down production in winter, raised output to a new record high in early December.
China's construction demand is likely to stall by early January, creating the only near-term speed bump to Chinese steel demand, but traders' restocking during January-February to annual stock peaks should fill in some of the gap for long steel demand, while manufacturing and exports are expected to cushion flat steel markets. Some mills have sold out their monthly allotments for HRC exports in early 2021. Some mills' cold-rolled steel products are fully booked through February, as strong auto and home appliance demand is expected to keep rising in 2021.
Higher feedstock costs have not impinged on mills' margins since September with gross profits at 400-500 yuan/t ($61-76/t) for HRC and Yn200/t for rebar in early December. Seaborne iron ore prices have risen to seven-year highs on tight Brazilian supply, while metallurgical coal and coke costs have soared with China's informal ban on Australian coal imports.
Debt concerns
A potential stumbling block for China's 2021 steel demand growth is its debt-to-GDP ratio, which jumped closer to 300pc in 2020. That same warning has been sounded for years, but Chinese policymakers have promised continued monetary and fiscal support into 2021.
The People's Bank of China expects China's GDP to rise by 2.1pc in 2020 and by 7.5pc in 2021. China's economy growth rate during the 14th five-year plan period in 2021-2025 would be at 6-8pc, while steel apparent consumption growth rate would reach 3-4pc, leaving a further growth room for steel demand, vice chairman of China Federation of Logistics and Purchasing (CFLP) said.
The five-year plan includes infrastructure, further urbanisation and key projects in transportation that will stabilise steel demand, the China iron and steel association (Cisa) said.
Beijing also assured the market last week at the Central Economic Work Conference (CEWC) its stimulus exit will be gradual and flexible, committing against a sudden turn in policy direction.
China started 4,504 key projects in October alone, with a total investment of Yn3.22 trillion, up by 16pc on the month and setting a record high for 2020, market participants said. The country issued Yn3.55 trillion in new special bonds from January-October, more than the Yn2.13 trillion in 2019, local finance ministry data show.
China is on pace to export more than 50mn t of finished steel in 2020, around 18pc below 2019 levels. Cisa expects these exports to increase in 2021, but the growth will be constrained by the global pandemic that has not yet been fully controlled and existing trade protectionism measures, it said.
By China staff and Chris Newman
Source: Argus
