Steel import boom in China - What should the market expect for 2021?

Tuesday, 29 September 2020 17:35:41 (GMT+3)   |   Istanbul

China’s steel import boom this year was an unpredictable phenomenon and has exerted a huge influence on the whole international steel market, which has been unpredictable like the whole of 2020. What should the market expect from China in 2021?

China’s monthly steel imports exceed 5 million mt in mid-2020

China’s effective measures to control the spread of the Covid-19 pandemic in the first quarter exerted a positive impact on downstream industries. Meanwhile, China issued fiscal and financial policies to stimulate local demand, boosting industries, including the automotive, electrical appliance and infrastructure industries, to enable them to develop and return to normal levels in the second quarter of the current year, which provided solid support for steel demand. At the same time, the overseas markets have been sluggish due to the severity of the Covid-19 pandemic, forcing billet, slab and flat steel supplies to look for alternative destinations - e.g. China, and so buyers in China have been active in purchasing imports.

The main imported items include billet, slab, HRC and other flat steel products. China achieved record-high imports in the latest month for which information is available, i.e., July, when it imported 2.606 million mt of finished steel, up 38.8 percent month on month, mostly consisting of HRC shipments. Also, the country’s imports of semi-finished products totaled 2.46 million mt in July, staying at a high level, but not showing any big change from June. As a result, China’s total imports of steel products reached 5.07 million mt in July. This level is almost 900,000 mt above China's exports for the month of July, making the country a net steel importer for the second month in a row. In June, China’s total steel imports came to 4.36 million mt, with semi-finished products being the main driver.

China imported 12.189 million mt of finished steel during the January-August period of the current year, increasing by 59.6 percent or 4.55 million mt year on year. Starting from August-September, import volumes have started to ease somewhat, though remaining significantly higher compared to last year.

China’s key to success

Fixed-asset investment in infrastructure will be the main driver for steel demand growth in China this year and is expected to increase by 10 percent in 2020 compared to 3.8 percent growth in 2019, according to a presentation by Ms. Jiang Li, chief market analyst at the China Iron and Steel Association (CISA). The construction boom can be illustrated by the sharp increase in excavator sales, which surged to 189,535 units, up 26.7 percent year on year in the January-July period this year.

Monthly growth of investments in infrastructure in the middle of 2020 (June-August) hit and exceeded 10 percent, according to experts, but total fixed-asset investments (FAI) in China’s infrastructure declined by 0.3 percent year on year in the January-August period, 0.7 percentage points slower than the decrease recorded in the January-July period, according to China’s National Bureau of Statistics (NBS). This shows that investment in infrastructure has indicated a further improvement amid stimulus measures by the local government, which boosted demand for steel, but demand [JF1] is still below expectations so far and has space to increase by the end of the year.

According to the data from China’s Ministry of Finance (MOF), in August this year local governments in China issued RMB 1.2 trillion ($0.18 trillion) of local government bonds, constituting the highest monthly level so far in the current year. Zhang Yiqun, deputy chairman of the Special Committee for the Budgetary Performance of China, said that the speeding up of the issuance of local government bonds in August was mainly due to the acceleration of the transformation of old residential areas, which boosted construction volumes.

China's real estate market has provided the main support for steel demand in the country, with investment growth in the sector reaching its highest pace in 16 months in August. For the January-August period, property investments increased 4.6 percent, faster than the 3.4 percent increase in January-July.

Outlook for 2021 positive, but China’s imports not to play same big role

Most financial agencies and investments analysts predict that China will post a GDP growth of 1-3 percent for 2020, while the forecasts for 2021 are bright. According to the International Monetary Fund, China’s GDP growth rate will rebound from the projected one percent to 8.2 percent in 2021. The Asian Development Bank (ADB) has revised its latest outlook for 2021 China GDP growth by 0.4 percentage points to 7.7 percent. ADB chief economist Yasuyuki Sawada stated, “Strong monetary and fiscal policy support helped the PRC economy rebound from a deep contraction in the first quarter of 2020 to post growth of 3.2 percent in the second quarter. To return to a sustainable growth path, it is vital for the PRC to focus on and implement policies that support and promote the continuous recovery of key economic sectors and industries post-COVID 19.”. The Organisation for Economic Co-operation and Development (OECD) expects global GDP to return to its pre-pandemic level by the third quarter of 2021.

As a result, the overall outlook for steel consumption in China next year is also positive. Worldsteel in its Short Range Outlook in June said, “We expect Chinese steel demand to increase by one percent in 2020. We also expect that the benefit from infrastructure projects initiated in 2020 will carry over and support steel demand in 2021 [consumption is expected to be in line with 2020]. A substantial stimulus program as seen in 2009 is not expected as this might work against the government’s desire to continue rebalancing the economy.”

Demand for steel in China's local market will likely indicate a downward correction in the fourth quarter of this year, which will shrink steel imports. But China’s imports of steel are expected to continue in 2021. As Murat Cebecioğlu, from Turkish steel producer ICDAS and chairman of IREPAS, commented at the SteelOrbis 2020 Fall Conference & 83rd IREPAS Meeting held virtually on September 21, “Local demand in China has been very strong, giving great help to the global steel market during the worst period of this coronavirus pandemic... As long as the Chinese government will maintain its stimulus packages in infrastructure projects, which seems very likely for 2021, China will provide strong support for the global steel and billet market in the coming period.”

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