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China’s steel production forecast to peak in 2018

Australian Department of Industry Innovation and Science in latest Quarterly Report said that “World steel production increased by 5.1 per cent in the seven months to July, compared to the same period in 2017. Most countries reported higher production, particularly China which accounts for half of world production. China’s steel production boosted by high prices and strong demand Chinese steel production increased by 6.8 per cent year-on-year in the seven months to July, driven by high prices and margins. China’s steel prices were supported by strong domestic demand. China’s apparent steel consumption (production plus net imports), increased by 8.6 per cent year-on-year in the seven months to July, driven by stronger demand from the construction sector and, to a lesser extent, from vehicle production. Profit margins for Chinese steel makers were historically high in the June quarter, however, higher input costs in July and August have since reduced these high profit margins. The impact of ongoing supply-side reforms in China, subsequently reducing some loss-making steel mill capacity, have propelled capacity utilisation rates to historically high levels, reaching 78 per cent in June 2018.”

China’s steel production forecast to peak in 2018
China’s steel production is forecast to increase in 2018. Production growth was stronger than expected in the first half of 2018, and will likely grow in the September quarter, as steel makers bring forward production ahead of government-mandated winter production restrictions — expected to apply from October 2018 to March 2019. Upcoming winter production cuts are expected to have a greater impact on Chinese steel makers then they did the same period last year. The 2018-19 winter restrictions aim to reduce blast furnace capacity at selected cities by 30-50 per cent. Over 440 million tonnes of steel capacity is expected to be affected by the pollution controls, which will likely lower the demand for steel-making inputs, iron ore and metallurgical coal. Chinese steel consumption is forecast to increase by 2.8 per cent in 2018. driven by strong demand from the construction sector as Tier 2’ (medium sized) cities continue to develop at a rapid pace. Steel consumption is also expected to be boosted by fiscal stimulus which will likely create favourable conditions for residential construction over the short term. China’s steel consumption is forecast to decline by 1.9 per cent in 2019 and by a further 2.3 per cent to 776 million tonnes in 2020, largely driven by slower urban residential construction and infrastructure investment. China’s steel production is expected to decline over the outlook period to 2020, driven by a suite of government policies, including stricter environmental regulations, supply-side reforms reducing some loss-making production capacity, and reducing debt. China’s steel exports decreased by 13 per cent year-on-year in the first eight months of 2018 to 47 million tonnes, as strong domestic demand absorbed more local output. Exports are expected to be increasingly directed towards emerging markets in South East Asia, however, lower production will limit the potential for strong export growth.

India set to become the second largest steel producer in 2018
India crude steel production increased by 5.5 per cent year-on-year in the first seven months of 2018 to 62 million tonnes. India is expected to overtake Japan as the world’s second largest steel producer in 2018, with production reaching 108 million tonnes. Production will be driven by the ongoing expansion of steel-making capacity, as producers strive to keep pace with rising Indian consumption. India’s steel consumption is forecast to grow strongly over the outlook period, driven by rapid urban population growth, substantial government investment in infrastructure, housing and urban development, and growing manufacturing sector. India’s steel output is forecast to grow by 6.7 per cent annually to reach 123 million tonnes in 2020, representing 7.0 per cent of world production.

Favourable economic conditions supporting the steel industry elsewhere 
Steel production in the European Union increased by 2.0 year-on-year in the first seven months of 2018, to 102 million tonnes. Production in the EU has been buoyed by higher steel prices driven by growth in the construction and manufacturing sectors. Steel output in the EU is forecast to remain steady over the outlook period, increasing by 1.3 per cent annually from 172 million tonnes in 2017 to 175 million tonnes in 2020. Japan’s steel production increased by 0.8 per cent year-on-year in the first seven months of 2018, to 61 million tonnes. Steel production in Japan is forecast to grow modestly in the short-term, supported by a rebound in capital expenditure and demand from 2020 Olympics-related projects. Protectionist trade policies are a key risk to the outlook for both regions, especially with the US now considering tariffs on vehicle imports.

Steel output in United States to be boosted by tariffs on imports 
Steel production in the United States grew by 3.6 per cent year-on-year in the first seven months of 2018, driven by rising domestic steel prices. US steel tariffs appear to be impacting the market — US Hot Rolled Coil (HRC) steel prices increased from USS647 a short tonne in January to US$913 a short tonne in August. The capacity utilisation of US steel mills increased to 78 per cent in August — the highest since September 2014.
Imports of steel products subject to the 25 per cent tariff increased by 14 per cent year-on-year in the six months of 2018, as US residents brought forward purchases before the tariffs took effect. However, the tariffs are expected to reduce steel imports over the outlook period.

Crude steel consumption 2017* 2018′ 2019f 2020f 2018′ 2019′ 2020′
World steel consumption 1.701 1,759 1.762 1,758 3.5 0.2 -0.2
China 788 810 794 776 2.8 -1.9 -2.3
European Union 28 172 175 177 179 1.8 1.2 1.0
United States 107 111 112 111 4.0 1.0 -1.0
India 96 102 108 115 5.3 6.1 6.3
Japan 75 73 73 72 -3.1 0.5 -1.8
South Korea 59 59 59 59 -0.1 -0.3 -0.4
Russia 43 42 42 42 -0.9 0.3 0.0
Brazil 22 23 23 23 0.7 1.7 1.5
Crude steel production 2017 2018′ 2019f 2020f 2018′ 2019′ 2020′
World steel production 1.689 1,771 1.768 1.759 4.8 -0.2 -0.5
China 850 886 861 842 4.2 -2.8 -2.2
European Union 28 168 172 174 175 2.4 0.6 0.9
Japan 105 106 108 109 1.5 2.1 0.8
India 101 108 115 123 6.5 6.8 6.9
United States 82 86 90 90 5.4 4.3 0.1
Russia 71 72 72 72 0.6 0.2 0.0
South Korea 71 71 71 70 -0.2 -0.3 -0.4
Brazil 34 34 34 34 -1.2 0.3 0.8

Notes: s estimate f forecast.
Source: World Steel Association (2018); Department of Industry, Innovation and Science (2018)


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