What China’s Steel Production and Prices Look Like in 2018?

A lot has been happening in steel sector of world’s largest steel producing nation China, especially since 2015. The year witnessed the biggest problem of steel over capacity due to poor domestic demand resulting in dramatic fall in its steel prices and tide of cheaper exports to various countries.

The year 2016 continued to have similar situation with the additional challenge of trade restrictions imposed by countries where China’s cheap steel products were being dumped.
Left with no option, the Chinese government finally decided to tackle the problem of overcapacity by announcing its plan to turn China into consumption driven economy from investment-driven one.

In the second half of 2016, the government announced economic stimulus package to boost domestic demand and issued directives to cut its total steel production capacity by 100-150 MnT, by 2020. As per the reports, the production cuts (65 MnT in 2016) coupled with trade restrictions from foreign countries impacted its steel export.
Thus, while China’s steel exports stood at 111.6 MnT in 2015, it declined to 108.1 MnT in 2016.

These measures adopted by government started showing results in 2017. The country’s domestic demand improved especially from construction sector and subsequently its steel exports reduced significantly. China’s steel exports for the year 2017 are estimated to stand at around 75.5 MnT (a fall of around 30% against 2016), while country’s steel prices recovered during the year.

Production and price outlook in 2018

• During winters the pollution emitted from steel manufacturing units creates heavy smog. Subsequently, in an effort to have clearer skies, Chinese government had directed mills in key producing regions to operate at 50% from Nov’17-Mar’18 which is likely to negatively impact country’s steel exports in the upcoming months (till Mar’18) of 2018.
• China’s steel exports are unlikely to rebound in early 2018 as tight supplies and better domestic demand will encourage steel mills to sell products in the domestic market.
• In mid Dec’17, the Chinese government announced cut in export tariffs on various steel products from 1Jan’18. In this tax reform announcement long products stand to benefit the most with tariffs being reduced to zero while stainless steel plate export tariffs will fall to 5% from 10%, and billet tariffs will be 10% (down from 15% currently).
• Analysing these two situations market sources believe that, while country’s steel exports will remain under pressure due to production cuts till Mar’18, there is high probability of export may improve post March due to export tariff cuts. However, this increase in exports would not be major amid strong domestic demand throughout the year.
• The market participants also believe that in 2018, the price increase in China’s domestic steel market will not be able to match up to the price surge of 2017 due to steady availability of material.

China Crude steel production and Export

Source: WSA, SteelMint
e – estimated figure
Quantity in MnT

China’s Domestic Finish Steel Prices 

Source:  SteelMint
Prices in RMB/MT, inclusive of 17% VAT