China’s Steel Industry Is dominating the Market But Will It Last?

Back in 1958 when China under Mao Zedong took the radical step of trying to modernise the economy, steel was to play a big part in the industrialisation program. Unfortunately the experiment didn’t end well because with all the best will in the world, a handful of small steel fabrication factories was not going to single-handedly industrialise an entire country the size of China.

Once the idea was abandoned then surprisingly steel production and the Chinese economy grew. To fuel this growth they poured huge amounts of money into the economy, particularly construction, and urged the country to ramp up it’s steel production to match the growing demand. The results were astonishing…

Within a few short years China had become the largest producer of steel in the world with a growing economy to match! With an eye watering $10 trillion GDP, China accounted for around 13% of the global economy. In 2014 alone Chinese steel production reached 823 million tons. This is roughly half the world’s total.

Economic Slowdown

It’s pretty obvious that China would in no way be able to sustain this growth and the slow-down appears to be just around the corner. According to economists China’s focus has shifted from a booming program of industrialisation to addressing the many environmental problems that they have. And when China’s government recently set out a 5 year plan they envisaged a growth target drop of 7.5% to 6.5%. That’s about $100 billion drop in GDP alone, Not exactly small change!

With less of a focus on rapid expansion there’s clearly less incentive to invest in construction which in turn has driven down the demand for steel production. The results are that global steel prices have slumped to a 10 year low.

So what does this mean for Chinese steel production?

For the first time, this slump has forced steel production companies to look outside of the country for customers. As a result Chinese steel exports increased dramatically in 2016 by 25% to 115 million tons. As a result China has been flooding the market with steel which is often 25% or 50% cheaper than anywhere else. However governments of affected countries are staring to fight back by imposing high tariffs on imported Chinese steel in some cases by as much as 50%

So where does this leave steel manufacturing in Australia?

For decades most Australian steel manufacture has been produced and used ‘in house’. However hopeful export deals struck with the US and recent contracts to use Australian steel in military vehicle manufacture have all played a key role in the country’s fledgling export business. Plants like the Port Kembla steel works are starting to see a new lease of life since facing imminent closure in 2015 and the signs are there that unlike China, steel production and the demand for Australian steel products is again on the rise.

Here at Metro Steel we fabricate and make a whole range of steel products right here at our Deception Bay fab shop. Why not come and talk to us about your latest project and how we can help. Talk to our experts on 07 3204 1000 and let us show you what we can do.

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