China: Metal containers lead downstream production growth in 2021

Amongst the entire range of key downstream steel segments in China, metal containers production showed the highest growth in 2021, as per data released by the country's National Bureau of Statistics.

Data revealed that containers production grew 111% y-o-y in 2021 to 231 million cubic metres on the back of huge profits reaped by shipping companies.

Since the start of the pandemic, the turnaround speed of empty containers has slowed down at US and European ports, leading to structural shortage in several regions while China has attempted to effectively control Covid. This prompted a quick growth in its exports. In the first eight months of 2021, China's container output registered 1.7-fold growth. Around 95% of containers worldwide originate from China. In Jan-Oct'21, China exported 3.91 million units of containers against 1.44 million units in 2020.

• Machinery: This was followed by a 29% y-o-y growth in metal cutting lathe sets production to 602,000 units in 2021. Big tractor sets output grew 19% y-o-y to more than 98,000 units while metal melting equipment production grew 14% y-o-y to 0.82 million tonnes.
  
  
• Excavators: Excavator sets, which are required in the construction industry, (and which is the largest downstream user of China's steel), grew 5.4% to 3.62 lakh units. However, these declined 18% m-o-m to 32,949 units in Dec'21 because freezing winter does not allow construction activities.
  
  

As per an independent, China-based institute's own estimates, in Dec'21, sales of excavators were at 24,038 units, down 24% y-o-y. Of the total, 15,423 units were sold domestically, down 43.5% y-o-y while 8,515 units were exported, up 105% y-o-y. Over Jan-Dec'21, total production of excavators was at 342,779 units, up 5.53% y-o-y. In H12021, after production touched historic highs, demand turned weak and output and sales continued to decline y-o-y. From May, the growth rate turned negative y-o-y and this trend has sustained till the present.

Reasons for decline in excavator sales:

• The high output in H1 led to oversupply compared to demand in H2.
  
  
• Infrastructure investment growth in 2021 was lower than market expectations and newly-started construction area declined y-o-y, leading to apparent slip in excavator demand.
  
  
• The resurgence of Covid in H2 of 2021 disrupted projects and transport in some regions in China.
  
  
• Automobiles: Production in the automotive sector grew 5% to 26.528 million units last calendar y-o-y and showed somewhat stable growth of 3.4% m-o-m to almost 3 million units in Dec'21. China Association of Automobile Manufacturers recently said that in 2021, production and sales of automobiles will be 26.08 million units and 26.26 million units respectively, a y-o-y increase of 3.4% and 3.8% respectively, ending three consecutive years of decline. Total production and sales have ranked first in the world for 13 consecutive years. It is estimated that China's total automobile sales will reach 27.5 million units in 2022, a y-o-y increase of about 5%.
  
  
• Household appliances: Output of this segment showed moderate growth y-o-y and de-growth m-o-m. For instance, in 2021, household refrigerator output de-grew -0.4% y-o-y to 89.92 million units and m-o-m by -5.2% to 7.58 million units in Dec'21. Household washing machines production grew 9.5% y-o-y to 86 million units but de-grew m-o-m in Dec'21 almost -3% to 7.86 million units. Winter is generally an off-season for home appliance sales in China.
  
  

Outlook

Overall, production of engineering and machine tools segment, which formed the bulk of the downstream segment, grew y-o-y but showed a m-o-m drop due to demand and weather-related issues.

China's steel demand in 2022 is expected to touch 959 mnt, down from 980 mnt seen in 2020 (as per WSA figures). The construction segment is expected to see a 0.90% drop in steel consumption to 551 mnt and usage in the energy too may see a -2.20% drop. However, steel demand from home appliances and automobiles are slated to grow almost 5% and 3% respectively, led by a Covid recovery. Containers segment would see around 35% growth in demand of the commodity to almost 6 mnt.