On June 8-10, Wu Wenzhang, Chairman of Shanghai SteelHome, was invited to deliver a speech at Steel Success Strategies XXX, held jointly by World Steel Dynamics (WSD) and American Metal Market (AMM) in New York. Mr. Wu joined the panel of China & Developing World: China is the perpetual profit destroyer, and the title of his speech was Chinese Steel Industry To Continue Impacting Global Supply/Demand Landscape (Full presentation is available for SteelHome VIP subscribers, and please write to SteelHome if you need it).

ⅠChinese steel industry to continue impacting global supply/demand landscape

1. Chinese steel has walked into all-round overcapacity, and China steel market demand will trend down in the coming ten years.

1) 2015 will be the turning point in China's steel demand. China crude steel consumption is expected to fall to 700 million tons in 2020 and 650 million tons in 2025.

•      China's GDP will be around 7 percent in 2015-2020 and 6-7 percent in 2021-2025.

•      Property sector see a long adjustment period ahead and steel demand from it will decline gradually.

•       Demand from infrastructure construction will keep stable.

•       Energy investments and manufacturing sector will see rising demand.

2) China's demand for steelmaking raw materials is reaching its peak range. China iron ore production and import will step down in the future. Global raw materials prices may remain low in the coming 5 years.

2. Chinese steel industry has comparative advantages in capital export, technical service, technique and equipments, construction etc.

•     Sizable investment into Chinese steel industry started in 1990s, and the investment amounted to 4.4 trillion yuan during 2003-2014. It brings in the latest technique and equipments in the world and drives innovation by Chinese steel mills. Currently, Chinese steel industry is equipped with the most advanced technique, facilities and supporting services.

•      Currently, China has 1.05 billion tons of ironmaking capacity, 1.12 billion tons of steelmaking capacity, 650 million tons of coke capacity and 1.86 billion tons of iron ore capacity, and their capacity utilization rate was 68.4 percent, 74.8 percent, 70 percent and 66.7 percent respectively.

•      China has strong capabilities in manufacturing steel equipments. From 2003 to 2014, ironmaking/steelmaking equipment output increased six folds and metal rolling production rose 5.2 folds.

3. Global steel demand growth will be driven by Asia (excl China, Japan and South Korea), Middle East, South America and Africa.

By 2025, world crude steel consumption may rise to 1.975 billion tons, up 270 million tons from 2015. China will account for 37.5 percent of global crude steel output.

4. Developing countries can learn from the development of China steel industry to develop their steel industry.

•     To use imports to satisfy domestic demand. China used to import a lot of steel products to meet domestic demand back in the shortage time and now China can supply the global market with low-priced and good-valued steel products. However, Chinese government does not encourage steel exports and controls the rate of export/output within 15 percent. China's steel export volume may remain at 80-100 million tons over the next decade.

•     To absorb advanced steel capacity transferred from China. China steel industry used to import idled capacity from Europe to realize quick development. Shagang and Shougang are two examples.

•     To bring in world advanced technique, equipments and investment. For instance, China's Baosteel and Anshan Steel quickly build up steel producing bases via introduction, cooperation and join-venture with Japanese and South Korean steel industries. Now, China has ability to help developing countries build new plants in the aspects of investment, equipment manufacturing, construction, technology and labor export .

Ⅱ Outlook for 2015-2017 Chinese Steel Market

1. In 2015, China's crude steel output may drop 1.5 percent to 810 million tons, steel exports come to 95 million tons and imports 14 million tons. Apparent consumption on crude steel basis may fall 2.5 percent to 720 million tons in 2015.

China's domestic crude steel output would be 800 million tons in 2016 and 790 million tons in 2017. Crude steel apparent consumption may be 710 million tons in 2016 and 700 million tons in 2017.

In first four months 2015, China's crude steel output was 270.07 million tons, down 1.3 percent yoy; pig iron output 236.13 million tons, down 2.5 percent yoy, and steel product output 361.09 million tons, up 2.1 percent yoy; steel exports up 32.6 percent to 34.31 million tons and imports down 9.6 percent to 4.43 million tons; apparent consumption of crude steel was 238.35 million tons, down 5.2 percent yoy, steel products' apparent consumption was 331.21 million tons, down 0.4 percent yoy.

2. In 2015, China's crude iron ore output may fall 14 percent yoy to 1.3 billion tonnes; import may increase 50 million tonnes to 980 million tonnes, up 5.3 percent year on year. Import will keep rising in 2016 and 2017. Then in 2017, the import may hit 1.05 billion tonnes.

In 2015, the import price may average 55-60 dollars/tonne (range at 45-70 dollars/ton), down 40 dollars/tonne or 41 percent from 2014. Average import price of China will be 50 dollars/ton in 2016, and 60 dollars/ton in 2017.

3. China steel market will keep weak balance in 2015-2017.

In 2015, China's average price of common HR products will be 2,500-2,650 yuan (403-427 dollars, Shanghai market), down around 20 percent from 2014. Price in H2 2015 will be higher than H1. Steel market will improve from H2 2017.

4. Short mechanism in futures market worsens the decline in China steel market price.

China steel industry is increasingly important to futures market. Futures has been one of the most important tools of price discovery and risk hedge for China steel industry. China steel and raw materials prices, led by futures market, have kept falling down.

Mr.Wu's speech was translated by Peter F.Marcus, Managing Director of World Steel Dynamics. Before the conference, Mr.Wu visited World Steel Dynamics, and discussed several hot issues with Peter F.Marcus, such as steel demand, steel export, HRC supply, steel futures. After the event, Mr.Wu visited the headquarter of Bloomberg. Mr. Kenneth Hoffman, Head of Global Metals of Bloomberg, introduced the building to Mr.Wu and talked about China steel market.