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As huge as it is, steel consumption in China is just beginning to grow


SINGAPORE Among all the figures in the World Steel Association's latest yearbook, one in particular stood out 405 kilograms. That's China's per-capita steel usage—around 890 pounds—and it's interesting because it illustrates both the extent of the country's economic growth and how much further that process has to run.

Unsurprisingly, China was the only major steel-consuming nation to see an increase (24 percent) in steel consumption in 2009 vs. the previous year. U.S. finished steel usage slumped 42.1 percent to 187 kg (412 pounds) from 323 kg (712 pounds), and similar declines were seen in most other nations that reported figures to Brussels-based WorldSteel.

The reasons for those big drops, and China's big rise, aren't hard to fathom as factories, construction sites and automakers turned off the lights throughout the developed world, those industries were ramping up capacity in China, thanks in part to a half-trillion-dollar stimulus package focused on infrastructure spending.

So far, no surprises. But look at the WorldSteel figure another way, and it shows not how much China has done but how much it still has the potential to do.

The best comparison for China's steel usage figure is not the United States, which long ago moved beyond the infrastructure-intensive phase of economic development (even if many believe there's an urgent need for that infrastructure to be modernized and rebuilt). Far more relevant are three of China's near-neighbors—Japan, South Korea and Taiwan—all of which rose to become (or, in the case of Japan, reemerged as) major industrial economies in the last half century. That's the path China's trying to follow, and on the basis of the WorldSteel figures it still has a long way to go.

The financial slump hit steel consumption in the three East Asian economies last year, but even so per-capita demand in all of the countries was higher than in China. But look back to 2008 to gauge how steel-intensive the economies are Japan used 612 kg (1,349 pounds) of steel per capita in 2008; Taiwan, 738 kg (1,627 pounds); and Korea a whopping 1,211 kg (2,670 pounds).

China has explicitly modeled its recent development on the rapid, export-oriented industrialization of these countries. That doesn't mean China will ever reach a similar level of per-capita steel demand. Its neighbors' smaller populations (Japan, the largest of the three, has a population of 127 million, less than one-tenth that of China) and the leading role of manufacturing and/or automaking in their economies has boosted per-capita steel use to a level that a continental economy like China will never reach.

But that doesn't preclude further growth. According to Judy Zhu, commodities analyst at Standard Chartered Bank in Shanghai, steel usage in China's so-called Tier 1 cities is already comparable to, if not greater than, that in countries like Japan. The rapid growth of cities in China's developed eastern region like Beijing, Shanghai and Tianjin has sent steel usage there to as much as 1,000 kg (2,205 pounds) per capita, according to Standard Chartered Bank's estimates. Meanwhile, China's poorer provinces—largely in the west—consume less than 200 kg (441 pounds) of steel per capita, extremely low for a country at the infrastructure-intensive stage of development.

There's sometimes a tendency to see China's growth as a manufacturing or export story. But it's really about urbanization. In the past 25 years anywhere from 200 million to 300 million Chinese have emerged from poverty into relative middle-class, a process driven by and mirrored in the development and modernization of the country's cities.

Even so, just 46.6 percent of Chinese live in cities, according to figures from the Chinese Academy of Social Sciences, although it estimated that could rise to 52 percent by 2015 and 65 percent by 2030. Or to put a human face on the figures, that means another 10 million people moving from the countryside every year for the next two decades, with all the associated demand for apartments, appliances, malls, subways and automobiles that comes with city life.

That's why the 405 kg of steel that each of China's 1.3 billion citizens used last year in some ways hides the true extent of the country's growth. Much attention has been paid lately to the Chinese government's fading stimulus, the country's overheated property market and faltering demand for its exports. But with such a huge pool of new domestic consumers waiting to enter the market for steel-intensive basic goods and services, it's hard to question the potential for further demand growth in the years ahead. KEVIN FOSTER

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