China: Expected strong GDP growth to keep crude steel curbs intact

China has shifted back to consumption-led GDP growth, instead of relying on investment and infrastructure, with the former contributing 64.8% of the total GDP growth till Sept'21.

China can afford to cut steel output with a solid GDP growth over Jan-Sept'21 at 9.8%, while it has targeted at least 6% for CY'21. "This is feasible and achievable," said Hongmei Li, Head of English Editorial at Mysteel. Li was speaking on the topic, "What do China's steel production cuts mean for global markets?" at SteelMint Engage, a five-day webinar series.

Since steel is about downstream consumption (infrastructure, automobile, home appliances, property market etc), China needed to ensure its overall economic performance was good before it turned its focus on output curbs.

China's monthly crude steel output has fallen y-o-y since July, and this is happening for the first time since Apr'20. It has been down y-o-y since then thanks to the production curbs and the high base of 2020.

Output scenario in Jan-Sept'21

• Crude steel output: Crude steel output at 806 million tonnes (mn t) (an annualised volume of 1,075 mn t), is up 2% y-o-y. The volume for entire CY'20 was 1,064.8 mn t.
  
  
• Finished steel: Output was at 1,020 mn t (1,360 mn t) up 4.6% y-o-y. The category is growing but pace slowing from previous years' around 10%.
  
  
• Raw coal output: At 2,930 mn t (3,907 mn t), it is up 3.7% y-o-y. China' coal production is still growing but supply could not really catch up with demand. Because of the growth stimulus efforts of governments globally, industrial activity has picked up pace more than in normal years. "Thus, demand for coal and other energy products intensified but supply has not been able to catch up with demand. Europe has been restarting coal mines," Li reminded.
  
  

EXIM scenario in Jan-Sept'21

• Finished steel exports: These were up 31.3% to 53 mn t (70.7 mn t annualised) y-o-y, despite there being a change in China's export policy in May and August. In the coming months exports would be very dependent on the price competitiveness. If there is a market readily available outside China and prices are competitive then exports will be increasing, stressed Li, adding that, in principle, China does not encourage steel exports but does not mind so for high-end steel products.
  
  
• Finished steel imports: At 10.7 mn t (14.3), imports are down 28.9%: Prior to 2020, China's imports ranged between 10-12 mn t. But Li feels this year it was not bad although compared to last year's 20.23 mn t, it looks pale because of price competitiveness. So y-o-y comparison is not right, she stressed.
  
  
• Iron ore imports: At 842 mn t (1,123 mn t), these are down 3% and have entered negative zone from July - the month from which steel production also started to decline.
  
  
• Coal imports: Are down 3.6% y-o-y to 230.4mn t (307 mn t), thanks to China's ban on Australia, coupled with supply disruptions from Mongolia, China's second largest supplier. So the decline is not only about China' demand but supply too.
  
  
• Scrap: Imports over Jan-Aug'21 were at 464,973 tonnes, against a mere 17,460 tonnes year-ago. China reopened the door to scrap this year after standardising the quality, as a supplement to iron ore. "This is a trend but relying on an overseas market does not put you in the driver's seat," observed Li.
  
  

Outlook

China's crude steel production in H2 will be lower because it has been monitoring its economic performance, to ensure that its minimum GDP targets will be met before the crackdown on steel output. Once comfortable with the achievements, steel output in CY'21 will be lower than in CY'20, said Li, emphasising that China has a very strong execution policy.

So steel demand for the rest of CY'21 and Q1 of CY'22 would be mixed, Li predicted. Demand is expected to wane from auto, machinery, and home appliances, while construction (property and infrastructure) will keep the momentum till year-end, though there is a question mark on property, Li observed.