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Is a sizable decline in China’s steel demand inevitable in the next decade?

Peter Marcus and John Villa, from World Steel Dynamics, this week take a look at the future of Chinese steel demand, and whether they can maintain the huge growth levels of recent years.

Peter Marcus will be speaking at the upcoming Steel Success Strategies Conference, 25-27 June 2018 in New York City.

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Is a sizable decline in China’s steel demand inevitable in the next decade?

WSD’s answer is a “strong yes” because: a) the country’s fixed asset investment (FAI) in the past two decades has grown at an unsustainable pace; and b) the country’s steel intensity – in terms of steel consumption per point of GDP – has been driven up to non-sustainable highs.  
Fixed asset investment in China is now so massive that it probably accounts for at least 92% of Chinese steel demand.  Household spending, that accounts for only about 8% of Chinese steel consumption, is about one-seventh as steel intensive as fixed asset investment per unit of spending on these items.  
As FAI declines as a share of GDP, and as household spending advances as a share of GDP; and, as well, the per annum growth rate for GDP declines to 6% or less at some point in the future, this combination could lead to a 70 to 120 million decline in Chinese steel demand.
China’s relatively huge steel intensity per capita is evident in this comparison: 

  • In China, apparent finished steel products consumption of about 720 million tonnes per annum, when divided by the population of 1.4 billion = 0.51 tonnes per capita.   
  • In the USA, apparent steel consumption of 110 million tonnes, when divided by the population of 330 million = 0.33 tonnes per capita.  

Chinese per capital steel consumption is more than 50% higher; yet, the USA’s average household income of $59,500 per capita is about seven times China’s $8,600 per capita. 
China’s monumental economic growth the past two decades is a validation of the Capital Fundamentalism economic theory.  The best foundation for an economy’s long-term growth, it’s postulated, is rising fixed asset investment as a share of GDP.
Here’s WSD’s Chinese 2025 forecast for some of these items:  

  • Fixed asset investment (GFCF) declines to 30.6% of GDP versus 41.1% in 2017. 
  • Household spending rises to 52.8% of GDP versus 42.4% in 2017.

Apparent steel demand by 2025 may decline to 600 to 650 million tonnes per annum versus 720 million tonnes in 2017. 

This report includes forward-looking statements that are based on current expectations about future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict. Although we believe that the expectations reflected in our forward-looking statements are reasonable, they can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including among other things, changes in prices, shifts in demand, variations in supply, movements in international currency, developments in technology, actions by governments and/or other factors.

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