Caixin
Dec 05, 2017 07:26 PM
ECONOMY

Growth in Steel Output, Consumption Expected to Be Flat in 2018

Growth rates for China’s crude steel output and overall consumption will soften to 0.7% next year, as government-ordered capacity cuts and an expected real estate slowdown curb demand, an industrial report found.

The near-zero growth represents a sharp slowdown from industry statistics for this year, when China’s crude steel production was forecast to rise 3% to 832 million tons, according to a report published Monday by the government-backed China Metallurgical Industry Planning and Research Institute (MPI). The institute forecast 2017 overall consumption will grow by an even stronger 7.7% to 725 million tons.

But the strong growth for this year was at least partly the result of a change in methodology, which saw the institute include a long-overlooked subpar steel product known as “strip steel” for the first time in 2017, MPI said.

Output of such strip steel totaled 60 million to 70 million tons in the first half, and accounted for 8.4% of the crude steel production in 2017. If that figure had been excluded, then crude steel production would have actually fallen 5.7% in 2017, according to calculations by Caixin.

The production slowdown comes as China continues a nationwide campaign it began last year to weed out older capacity, which included sharp reductions in strip-metal mills in the first half of this year. Some 600 such mills were shut down in the six-month period, trimming 120 million ton of capacity, according to the official Xinhua News Agency, citing industry data.

At the same time, many are expecting China’s economy, including its real estate sector, to slow in the years ahead as the government takes measures to cool the market and overhaul large state-owned enterprises.

Until now, China’s strong economic growth and overseas demand from a recovering global economy have helped to keep demand for steel from the important manufacturing industry relatively strong.

China’s gross domestic product notched a 6.9% growth in the first nine month of the year, 0.2 percentage points higher than full-year 2016, as downstream sectors —including real estate development, infrastructure construction, machinery manufacturing, automobiles, ship manufacturing and household appliances, which are all heavy steel consumers — showed solid growth.

Rapid growth in China’s exports has also supported domestic steel consumption. Exports grew 11.7% in the first 10 months, with mechanical and electrical products up by an even stronger 12.4% from the same period a year ago to 7.16 trillion yuan ($1.08 trillion), accounting for 55.7% of the overall exports growth.

But many expect the real estate sector, a major steel consumer, to post little or no growth next year, following the rollout of a series of government policies aimed at cooling the overheated market.

Contact reporter Pan Che (chepan@caixin.com)

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