The economy of the steel production industry in China
In the past 10 years, China’s steel trade output has consistently maintained more than 50 percent of the world’s steel production. In fact, in 2020 it reached 57 percent of the world’s total output. One of the reasons for this is that Mergers and Acquisitions are prevalent among the big companies in China’s steel industry.
In 2020, China’s steel production rose 6 percent and hit its highest level of 1.1 billion tons. Since the construction of infrastructures in the country has increased, steel production also followed in 2019 when the government encouraged increased groundwork. This upsurge in production coupled with environmental consciousness has driven the price of steel up.
Moreover, steel importation rose in 2020. During the second half of 2020, China’s domestic price of hot-rolled coil (HRC) exceeded that of rebar. As rebar is usually in the lead and the most-consumed steel product, HRC dominance is therefore uncommon in the country. China became a net importer of semi-finished and finished steel over June to September as well as in November of 2020, which had not been witnessed in over a decade.
For the whole of 2020, the China Iron & Steel Association (CISA) predicted China’s steel exports to fall 15 percent year-on-year. On the other hand, imports will surge 60 percent year-on-year. Furthermore, the country’s net steel export volume may slump to only 15 million tons from 50 million tons in 2019.
China’s help to cushion the blow of the pandemic on the global steel mills, thus, had been widely acknowledged. For a long while in 2020, the country had absorbed steel supplies from many countries including those in the ASEAN region – China’s usual steel export destination.
China targets to reach peak carbon emissions (accounts for about 15 percent of China’s total carbon emissions) before 2025. By 2031, the country will have reduced carbon emissions by 30 percent. However, the steel industry is one of the most polluting sectors in the country. To note, older blast furnaces used in steel production are more polluting than new or renovated ones. Therefore, stricter measures are being implemented around crude steel production in favor of sustainable alternatives.
Less harmful options include the use of more scrap metal, carbon capture blast furnaces, and hydrogen-based steelmaking. Scrap metal is limited as to its availability. Furthermore, the new technology that could replace current practices are still at their infancy and are not yet fully reliable.
China’s steel industry has always been a major concern for the U.S. despite the latter’s steel production boom. The competition is high among U.S. steel producers due to China’s massive steel trade and investments. China dominates the global steel industry mainly due to full-blown government subsidization. Thus, the dumping of tons of steel in foreign markets has depressed the global steel prices, bringing in extreme difficultly against U.S. producers.
Look back on our article about Trade Deal between U.S. and China: Taking the First Step