ORLANDO, Fla. A slowdown
in Chinese steel demand and an increase in the nations
ferrous scrap reserves could rock U.S. markets in the next
decade, depending on Chinese government policy, according to
World Steel Dynamics Inc. (WSD).
Steel demand in China is likely
to slow as large infrastructure investments tail off in the
next 10 years, Philipp Englin, chief executive officer of
Englewood Cliffs, N.J.-based WSD, told attendees at the
American Wire Producers Association (AWPA) annual meeting in
"The great question with China
as we look ahead is, Does steel demand really continue to grow
or is there a point when this machine simply becomes
unsustainable?" Englin said. "Im a believer that at some
point they could simply hit the wall and steel demand will
outright decline in China."
Investment in fixed
assetssuch as infrastructure, housing and
constructionis the primary driver behind Chinese steel
demand, with as much as 90 percent of Chinas steel output
in 2012 aimed at those end markets, Englin said. China, the
worlds largest steelmaker, produced 716.54 million tonnes
of crude steel last year
(amm.com, Jan. 18).
But fixed-asset investment will
slow in the next few years as the effects of Chinas
massive post-recession investments in infrastructure wear off.
"Were all aware that China deployed a massive stimulus
program, and the bulk of that stimulus program went into
steel-intensive-type projects (like) infrastructure," Englin
said. "(But) what youve ultimately created is a bubble.
... (Now) theyre trying to reconfigure the economy away
from fixed-asset investment of build, build, build
to Lets consume a little more."
industrythe worlds largest in terms of
productiondemands 50 million tonnes of Chinas steel
output, which is a "paltry fraction of the total," Englin said,
and increased consumer steel consumption will not make up for a
decline in infrastructure and other development.
The effect of lower Chinese
steel demand on the U.S. market remains uncertain. China might
choose to ship its excess steel to the United States during the
next decade, Englin said, or the government could restrict
"You could see an increase in
exports of certain steel-related products, for example," Englin
told AMM on the sidelines of the AWPA meeting.
"Theres a chance that exports will go up. ... Exports out
of China will be a function of many things; obviously, market
forces will be one of them. Government policy will play a
bigger role, I would think."
Chinese steel exports grew
faster than the rate of production in 2012 compared with the
previous year, with total steel output up 7.7 percent and
exports up 13.5 percent, according to Jim Kerkvliet, vice
president of commercial sales at Gerdau Long Steel North
America. "We start to see that where the Chinese economy is
slowing, we start to see that theres export growth from
China," he said during a presentation at the meeting.
Excess ferrous scrap
supplyas much as 150 million tonnes of excess scrap in
2025 and double that in 2035, according to one data model,
Englin saidalso could affect U.S. markets if the Chinese
government does not impose export restrictions.
Although steel normally has a
life cycle of 10 to 40 years before it is recycled and enters
the scrap market, Chinese steel could be recycled much faster,
Englin said. Fast-deteriorating roads and newly constructed
buildings that are collapsing point to Chinese scrap entering
the market more quickly than the country can expand its
electric-arc furnace (EF) capabilities.
"The quality of the
infrastructure and the quality of non-consumption-oriented
steel thats been consumed in China isnt that high,"
Englin said. "Its sort of proportionate to the consumer
goods you get out of China: Theyre kind of cheap and
shoddy on average."
If China does significantly
expand its EF capabilities, total excess scrap in 2025 could be
around 70 million tonnes, but without a restriction on scrap
exports the excess could have a dramatic effect on global
Letting Chinese scrap "flow
freely ... would be a revolutionary event (in the United
States) if that would happen," a wire fabricator said during a
The combination of reduced steel
demand in China as well as increased scrap reserves could also
greatly reduce iron ore demand, Englin said. "It takes some
really gutsy forward thinking on the part of the industry today
to capitalize on a changing competitive landscape a decade from