Barış Çiftçi: China’s growth model to change from investment to consumption

During the "New Horizons in Steel Markets" 10th Annual Conference organized by SteelOrbis in Istanbul on November 19, Barış Çiftçi from the World Steel Association (worldsteel) said worldsteel believes that the peak figures for Chinese steel demand were recorded in 2013 and that Chinese steel demand will be lower in the coming period. Mr. Çiftçi said that the peak period in China has been left behind and that China's growth model is changing. He stated that investments account for more than 40 percent of the Chinese economy, adding, for example, that housing inventory indicates significant oversupply and that capacity has reached quite high levels in many industries. In this context, the worldsteel official said he considers that additional investments are not attractive anymore and so China has to change its growth model and this will significantly affect China's steel consumption and the global steel industry. "China will shift its growth model from investment to consumption and will shift its production focus from heavy industry to the service industry and other industries as well," said Mr. Çiftçi.
 
"Weaker growth in the steel industry might not be a significant problem, what makes it harder is that the current capacity utilization rates are as low as the rates in the 1990s when the industry was going under a restructuring period. The average global capacity utilization rate is at 70 percent. Whether steel producers have sustainable profit margins remains under a question mark," stated the worldsteel official.
 
As for the coming year, Mr. Çiftçi said that global steel consumption is expected to increase by only 0.7 percent, while the significant decrease in Chinese scrap-based production has caused a decline in electric arc furnace-based production's share in total steel production. Mr. Çiftçi pointed out that a recovery is expected in EAF-based production, although at very slow rates, while integrated steel production will not see high growth rates. He went on to say that regarding the raw material balance, demand for scrap and DRI will increase, while pig iron demand will follow a sideways trend. On the other hand, the four major global iron ore miners have a combined iron ore supply of 1.3 billion mt. Mr. Çiftçi underlined that iron ore supply exceeds demand and this will cause the gap between supply and demand to widen each year.