S&P Global Platts stages many steel conferences and forums around the world, but regardless of the location China is invariably the dominating topic. And this was again the case at our Ferrous Forum in Tokyo and Steel Markets Asia conference in Mumbai, both held last month.
Within China, there is a sense that the steel industry is starting to cool off – with some industry participants going as far as to describe it as a “sunset industry.” But outside of China, competing steel countries would liken it more to the heat of the midday sun, with many companies feeling burnt by Chinese imports and overcapacity.
In Japan, if the audience felt like this they were too polite to say – that is until the cocktail hour at the end of the presentations, when some congenial lubrication allowed many inquiries and questions around China to emerge. Attendees wanted to know more about steel price trends; how Chinese mills had weathered the storm in the past year or two; how the Chinese steel industry felt about Beijing’s consolidation push; and whether mills had been affected by tighter environmental controls, among many more questions.
Japanese attendees took the opportunity to better understand their Chinese rivals – even though, on the face of it, steel mills in these two countries run their businesses very differently. Japanese mills typically stick to long-term upstream and downstream supply deals, and do their best to protect themselves from price volatility.
Chinese mills, on the other hand, are happy to enter the fray of spot pricing, including negotiating for premiums and discounts on monthly average indices, and participating in auctions for certain steelmaking raw materials, such as ferroalloys. Many mills now participate in steel and iron ore futures (not always for hedging purposes), which would be anathema to most Japanese mills.
Meanwhile…India peers over its shoulder at China’s exports
Unlike Japan and China, where steel output and consumption have largely plateaued, India’s steel sector has plenty of growth to look forward to. India’s steel consumption per capita in 2014-15 was just 61 kg, compared with over 500 kg for both Japan and China, and 70% of India’s population is rural compared with 51-52% in China.
But India is desperate to become self-sufficient, particularly in manufacturing. In the words of government steel secretary Dr Aruna Sharma at our Mumbai conference, India wants to break free from its “dependency syndrome.” This means creating space for India’s steel industry to potentially treble its steel production capacity to 300 million mt/year by the end of next decade. India has imposed a number of trade defense measures to protect its steel industry, which fears cheap imports from China could undermine its ambitions for both the sector and economy. Some of the tensions around these issues spilled over into a particularly testy panel discussion at Platts’ Mumbai conference.
Indian steelmakers on the panel and in the audience rounded on China Iron & Steel Association vice-chairman, Li Xinchuang , accusing China of failing to reign in its capacity and exports. The accusation was stoutly defended by Mr Li, who argued that China was making a big effort in difficult circumstances, and a “net” reduction of 100 million-150 million mt of steel capacity would be removed by 2020. He acknowledged that China’s ratio of exports to production had jumped to 15%, but he pointed out that Japan exported 40% of its output and South Korea 46% in 2015.
In a bid to maintain a fair and balanced discussion, the panel chairman raised the specter of India one day being on the receiving end of similar criticism through bringing on so much new capacity in an already oversupplied world – particularly if steel capacity growth outpaces consumption. Not surprisingly, this notion was dismissed by Indian steel panelists. Notwithstanding India’s ambitions for its steel sector, it will never reach China’s proportions. Therefore we can look forward to much more debate and discussion around China’s steel industry in future Platts events.