China's Impact On Global Steel Industry

Steel, an alloy of iron, carbon & various additional elements, is an essential raw material for various applications. Its versatile properties, including high tensile strength and recyclability, have made it usable for applications across sectors such as building and construction, engineering, automobiles, electronics, and machinery. Any change in steel price per kg is reflected across these industries.

Before navigating through China’s impact on the global steel industry, let’s explore types of steel & their uses. 

Types Of Steel

Steel is classified into various categories based on various factors, such as strength, composition, intended application, etc. Diverse types of steel have different usage such as:

  1.         Stainless Steel: It contains a minimum of 11% chromium alloy. It has high corrosion resistance, making it ideal for water-based applications like stainless steel pipe and other household products. It comes with shock resistance properties across various temperature ranges.
  2.         Carbon Steel: True to its name, this steel variant is based on carbon content. It comes in 3 variants:

  •       High carbon content steel
  •       Medium carbon steel
  •       Low-carbon steel (mild steel)

As carbon content increases, brittleness also increases which results in decreased steel ductility.

  1.         Tool Steel: It is formulated with alloys like vanadium, cobalt, tungsten, and molybdenum. This, in turn, enhances steel resistance to heat and durability. Primarily, it is used in crafting tools for pressing, mould-making etc.
  2.         Alloy Steel: In addition to carbon, this variant contains diverse elements such as silicon, aluminium, and copper, fostering unique properties. Due to its distinctive alloying characteristics, it is typically used in mechanical operations.
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China’s Steel Industry

Let’s explore the key features of the Chinese steel industry:

  1.     Industry Dominance: With China boasting nearly 50% of the world’s total steel output, its steel industry’s unprecedented growth in the past three decades has positioned it as the leading steel producer as well as consumer. This dominance makes any fluctuation in the Chinese economy reverberate throughout the global steel industry, impacting steel price per kg, production, and international trade.
  2.         Influence On Global Steel: China’s steelmaking capacity is approximately ten times that of the U.S. With that being said, China has been accused of dumping cheap steel on the global market to gain a competitive edge. The Trump administration urged Chinese leaders to reduce production, aiming to enhance the profitability of U.S. steelmakers. In 2017, China addressed overcapacity issues by shutting down about 50 million tons of steel production, impacting both domestic and international markets and steel price per kg.
  3.         Economic Slowdown: In the last decade, China’s economic slowdown in 2015 had repercussions on the global steel industry. As demand for steel, iron ore, and ferrous metals declined, the Chinese government’s policies, subsidies, and dumping practices affected the stock prices of steel companies worldwide. China’s position as the largest exporter of steel further exacerbated the situation.

Global Steel Landscape & Influencing Factors 

In the year 2022, China, India, Japan, the United States and Russia were the top five global steel-producing countries. During the same year, China’s dominance was overwhelming, producing 1,018 million metric tons of crude steel, far outpacing other nations. China and Japan lead in the steel export list, exporting 68.1 million metric tons and 31.7 million metric tons, respectively. The United States and the European Union are prominent importers due to their high consumption rates. The global steel industry is dynamic, with recent developments shaping its trajectory:

  1.       War: The Russia-Ukraine conflict, the Israel-Hamas war and COVID-19 containment measures in a few East Asian economies are dampening the growth outlook for global demand in 2023, straining already stretched global supply chains. The uncertain steel demand is anticipated to persist until 2023 end, and potentially beyond, depending upon developments in the war-like situation.
  2.         Reduced Exports: The market experts indicated a substantial decrease in steel exports for 2023. As per trade figures for January-May, annualized export numbers are projected to decline by 7.8% by the end of 2023.
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Excluding intra-trade within the European Union (EU), these figures are slightly lower suggesting that EU intra-trade has not been severely affected by the war’s consequences and the slowdown in steel demand in China (0.6%).

  1.     Reduced Demand: The second half of 2023 remained subdued as developed economies grappled with rising interest rates, leading to reduced investments in fixed assets and a direct impact on steel demand. Escalating energy costs are foreseen to impact industrial output negatively, particularly in the European Union, potentially compelling major industrial users to halt production. World Steel Dynamics already reported a 7.5% decline in global steel consumption barring China in 2023 compared to 2022.
  2.         Downward Pressure: While a 1% increase in demand was initially anticipated for 2023, reflecting a slowdown in inflation, the ending credit tightening measures by central banks, and a recovery in consumption and employment, the slump in the Chinese real estate market, and stringent COVID policies are exerting downward pressure on demand.

Overall, steel demand growth is expected to be significantly slow. The dominant steel-consuming sectors, real estate, and infrastructure, are grappling with high debts and bankruptcies, leading to a sharp contraction in real estate investment and price declines. Despite the introduction of a set of 16 measures by the government to support the real estate sector, their impact on sector investment remains unclear.

Recent Developments

Despite efforts to cut steel production for environmental reasons, some Chinese plants are increasing capacity, leading to a rise in steel output. This growth has sustained demand for high-grade iron ore, influencing steel prices globally. In the United States, buoyed by strong domestic demand, steel producers are increasing prices to cope with rising input costs and currency depreciation. While this trend bodes well for steel companies, any future demand drop could prompt China to export surplus steel, affecting international prices and the industry’s dynamics.

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In The End 

Steel’s usage in the engineering and construction sector underscores its global significance. China’s emergence as the dominant force in the steel industry brings both opportunities and challenges for stakeholders worldwide. The interplay between China’s economic fluctuations, production decisions, and global market dynamics makes it a critical influencing factor for the global steel industry.