Steel, the 'new textiles' for
China By Steve Mackrell
LONDON - In business, a lot can change in
five years. In 1999, China was the world's 14th
largest exporter of milled steel products - that's
the basic steel shapes like flat products (coil,
sheet, plate and strip steel) and long products
(rod, bars, tubes and wire), typically used in
construction and in certain manufacturing sectors,
such as the auto industry.
But by 2004,
China had leapt from the 14th to the fifth-largest
world steel exporter, and this year will see China
among the global top three. Six months into 2005,
China was already vying for top spot on the world
export leaderboard (see table below), along with
Russia and Japan, each with over 16 million tons
of steel exports. It's simply too close to call as to
which of these
three countries will
finish the year as the
world's biggest exporter. So just as Chinese
textile mills have come to dominate world markets,
it now seems that China's steel mills are poised
to emulate their success.
World's top ten steel
exporting countries (thousands of tons
of exports)
H1
2004
H1
2005
% change
y-o-y
Japan
17909
16975
-5.2%
Russia
14644
16586
+13.3%
China
5744
16384
+185%
EU25
15330
15380
+0.3%
Ukraine
13998
13585
-3.0%
South
Korea
7496
7896
+5.3%
Turkey
6571
6521
-0.8%
Brazil
6198
6281
+1.3%
Taiwan
4564
4874
+6.8%
USA
3955
4972
+21.2%
And
yet, turning the clock back to only 2003, China's
steel exports were only a modest 8 million tons
and completely dwarfed by rampant steel imports,
which logged some 43 million tons that year. Then,
in 2004, the beginnings of a turnaround: starting
in September, exports gained the ascendancy and
more than doubled to finish the year at 20 million
tons.
Meanwhile, imports fell from
43 million down to 33 million tons. So far this
year, imports and exports have been more of a
rollercoaster although, in the year to August
2005, exports have a slight edge over imports by
around 1.7 million tons. Nevertheless,
Chinese
steel export levels are now among the highest of
any country in the world.
So, what happened to reverse China's
recent trading patterns to make China a net
exporter? Looking at Chinese steel consumption
trends, it appears that while consumption has
continued to grow, the rate of growth has been
slowing, following macroeconomic cooling measures
by the central government.
As a result,
the level of steel imports entering China has
fallen significantly. Nevertheless, China still
managed to produce a record 270 million tons of
crude steel in 2004 - a new record high and yet
another annual leap of over 20%. This year it
looks like production will rise by a further 27%
to perhaps reach 345 million tons - a massive 30%
of all the steel made in the world. Inevitably,
the combination of rampant production and dampened
domestic demand has caused more and more Chinese
steel to find its way onto the export market.
A breakdown of Chinese steel exports by
product in 2004 showed semi-finished steel topping
6 million tons, with flat products at 5.8 million
tons and long products at 5 million tons. The
majority of steel exports, over 70%, went into
adjacent Asian markets, although there were
significant gains for Chinese steel in other world
markets. For example, exports to the EU, the US
and to the Middle East more than doubled. There
were particularly big increases in semi-finished
steel to Taiwan, Thailand, Vietnam, Indonesia and
Malaysia, hot-rolled wide coil to South Korea and
Japan, and wire rod to the US.
If current
Chinese trends of increased self-sufficiency in
steel continue to develop, then the impact on the
rest of the world could be dramatic. If recent
trends continue, with Chinese exports growing and
imports falling, then the global equilibrium of
steel supply and demand could once again be upset.
The past 12 months has seen unprecedented price
increases for steel. Supplies of basic steelmaking
materials have remained tight, pushing up their
price, and adding to the costs of steelmaking.
Steel supply, in turn, also became tight in a
period when demand was rising, which meant that,
on this occasion, the higher steel prices were
sustained. For once, steel supply and steel demand
were broadly in balance.
There is now the
specter that this new and delicate balance of
steel supply and demand could be disrupted.
Firstly, Chinese steelmakers appear to be
successfully finding new markets outside of China
which are vital if they are to sustain their high
production levels. Second, exporting countries
with a hitherto large foothold in the Chinese
market are, with domestic Chinese consumption
dampened, having to look elsewhere and find
alternative markets.
This additional
"floating" steel, when combined with production
from new steelmaking capacity destined to come
on-stream, could upset the current balance of
steel supply and demand, tilting it back in favor
of oversupply. And that would bring the world back
to the old story of steel being in oversupply,
consequently depressing prices.
Steve Mackrell is the operations
director at the Iron and Steel Statistics Bureau
(www.issb.co.uk), the
leading producer of steel industry statistics in
the UK.
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Chinese
steel export levels are now among the highest of
any country in the world. 
