Caixin
Jan 13, 2020 08:13 PM
BUSINESS & TECH

Specter of Oversupply Returns With Robust Steel Output Forecast for 2020

China’s steel output in 2020 is expected to maintain the same robust growth that it had last year, and that could be a problem.

A steel industry group has warned of a possible reemergence of oversupply in the domestic market as it expects growth in demand won’t keep up with supply this year.

China’s total output for crude steel in 2020 will grow at a rate similar to last year’s 6%, even as growth in demand will slow sharply to 2%, amounting to 890 million tons, the China Iron and Steel Association (CISA) said at its annual meeting Saturday.

Domestic steel output was around 980 million tons in 2019, while demand grew at similar rate to 875 million tons for the year, according to the CISA.

Last year, demand for steel maintained solid growth thanks to support from the real estate industry and infrastructure investment.

However, demand will soften this year primarily because of a slowdown in the growth of investment and new construction in the real estate industry, the CISA said. The slowdown will be sharp enough to offset the expected steady growth this year in infrastructure investment and the home appliance industry.

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The World Steel Association has forecast that China’s steel demand will grow by a little as 1% this year as the country’s economy continues to cool.

In addition, the international steel market isn’t in any shape to absorb China’s surplus steel production due to the China-U.S. trade war, according to a report by the CISA. A 25% tariff on steel — imposed by the U.S. in March 2018 — has hurt the steel demand of downstream Chinese industrial companies struggling to sell their exports.

China exported 67 million tons of steel products in 2019, down 6.7% from the previous year, marking the fourth year in a row that export volumes dropped, according to CISA data.

From 2016 to 2018, China made headway in reducing excess steel production capacity by around 150 million tons in a bid to reduce pollution and respond to international claims it had flooded global markets. That balanced supply and demand, but CISA Vice Chairman Chi Jingdong said last month that an imbalance would re-emerge without an increase in steel demand.

Contact reporter Yutong Lu (yutonglu@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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