Challenges are substantial when seeking to adjust published Chinese steel statistics for: a) unreported blast furnace output - that could be 20 million tonnes per year (mmtpy) assuming that some smaller integrated mills at times don’t report output during the nighttime; and b) unreported induction furnace output – that could have been 60 million tonnes in 2016 and 20 million tonnes in the first half of 2017 (with no output in the second half since the closure of all units was mandated by July 1, 2017). We also don’t know: a) how much replacement EAF steelmaking capacity is being built by the previous induction furnace producers (with “talk” that the figure is 20 million tonnes); b) how much obsolete steel scrap was recovered in 2016 and 2017; c) the size of the steel scrap glut that’s been created by the shutdown of the steel-scrap-dependent induction furnace facilities; d) how much of the induction furnace producers’ final output was billet, rebar or wire rod (with the billet rolled into low-grade products by independent rolling mills and the rolling mills of smaller integrated steelmakers); and e) the size of steel mill and steel buyer inventory swings.
Given this background, we expect:
- Apparent steel demand in China in 2018 to rise about 1.3%, after a 2.4% increase in 2017. The key factor sustaining steel demand will be the government’s promotion of farther gains in infrastructure spending.
- Chinese steel production may amount to 860 million tonnes in 2018 versus 840 million tonnes in 2017. If so, a 900 million tonne annualized rate may be hit by June 2018 as the mills make up for the production shortfall in the North during the winter months (mandated in order to reduce air pollution).
- Chinese EAF production is rising given: a) the surplus of steel scrap that’s been created after the closing of the induction furnaces; and b) the 40% Chinese export duty on steel scrap that’s restraining sizable offshore deliveries. China’s BOF steelmakers are also now using a higher proportion of steel scrap in their metallics charge.
When will Chinese steelmaking capacity be cut back substantially? We expect this to occur in 2019 given substantial industry overcapacity. In 2019, we are forecasting reduced domestic steel demand as fixed asset investment falls back as a share of GDP and no major gain in steel exports reflecting trade suit restrictions and the government’s production restraints in order to hold down air pollution. The bulk of the steelmaking capacity reduction to date in China, has reflected the closure of inefficient and highly polluting smaller units.
| Chinese Steel Gross Capacity, ECO Capacity and Steel Production: 2013 to 2018 | |||||||||
| (million tonnes) | |||||||||
| Production | Capacity | ||||||||
| 2016 | 2017e | 2018e | 2013 | 2014 | 2015 | 2016 | 2017e | 2018e | |
| Gross Crude Steel Capacity# | 1,133 | 1,157 | 1,159 | 1,107 | 1,034 | 1,000 | |||
| ECO Capacity (87% of gross) | 986 | 1,007 | 1,008 | 963 | 600 | 870 | |||
| EAFs + Induction Furnaces | 120 | 80 | 70 | 145 | 150 | 145 | 140 | 95 | 80 |
| Small Steel Mills' EAF | 15 | 10 | 15 | 35 | 28 | 23 | 15 | 15 | 20 |
| CISA Members' EAF | 45 | 50 | 55 | 40 | 42 | 42 | 45 | 50 | 60 |
| Induction Heating Furnaces* | 60 | 20 | 0 | 70 | 80 | 80 | 80 | 30** | 0 |
| BOFs | 748 | 780 | 795 | 911 | 937 | 943 | 903 | 535 | 790 |
| Small Steel Mills' BF/ BOF | 80 | 80 | 70 | 120 | 130 | 130 | 105 | 90 | 90 |
| CISA Members' BF/ BOF | 668 | 700 | 725 | 791 | 807 | 813 | 798 | 445 | 700 |
| Of which: | |||||||||
| Coastal location | 150 | 160 | 170 | 125 | 130 | 140 | 150 | 160 | 170 |
| Inland location | 518 | 540 | 555 | 666 | 677 | 673 | 648 | 285 | 530 |
| ---Production--- | |||||||||
| Crude Steel Production (Reported) | 815 | 823 | 804 | 808 | 840 | 865 | |||
| Less: Exports | 58 | 88 | 107 | 103 | 75 | 70 | |||
| Plus: Imports | 14 | 14 | 13 | 13 | 12 | 12 | |||
| Equals: Domestic Apparent Demand | 771 | 749 | 710 | 718 | 777 | 807 | |||
| Plus: Induction Furnace Output (Unreported and not known) | 30 | 40 | 50 | 60 | 20 | 0 | |||
| Equals: Adjusted Apparent Demand | 801 | 789 | 760 | 778 | 797 | 807 | |||
| Year-to-year change in apparent demand | -1.5% | -3.7% | 2.4% | 2.4% | 1.3% | ||||
| Note: Eco-Capacity is the global steel production rate in a rising steel production environment at which the mills' marginal cost starts to rise significantly. | |||||||||
| #The gross capacity figures are not precise; *Unregulated and not knows. The production estimate for 2017 is through June; ** Half year | |||||||||
| Source: WSD estimates | |||||||||
This report includes forward-looking statements that are based on current expectations about future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict. Although we believe that the expectations reflected in our forward-looking statements are reasonable, they can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including among other things, changes in prices, shifts in demand, variations in supply, movements in international currency, developments in technology, actions by governments and/or other factors.
The information contained in this report is based upon or derived from sources that are believed to be reliable; however, no representation is made that such information is accurate or complete in all material respects, and reliance upon such information as the basis for taking any action is neither authorized nor warranted. WSD does not solicit, and avoids receiving, non-public material information from its clients and contacts in the course of its business. The information that we publish in our reports and communicate to our clients is not based on material non-public information.
The officers, directors, employees or stockholders of World Steel Dynamics Inc. do not directly or indirectly hold securities of, or that are related to, one or more of the companies that are referred to herein. World Steel Dynamics Inc. may act as a consultant to, and/or sell its subscription services to, one or more of the companies mentioned in this report.
Copyright Ó 2017 by World Steel Dynamics Inc. all rights reserved