China’s crude steel consumption likely to grow 1-2 pct next year, says HSBC

China is expected to maintain its demand supportive policies. According to an HSBC research report, China’s crude steel consumption is forecast to expand by 1 percent to 2 percent next year. Crude steel apparent consumption in 2016 year to date has remained flat at -0.3 percent year-on-year. Consumption was adversely affected by subdued first quarter 2016, where consumption and production both fell 5 percent year-on-year.

However, the scenario that took place in the first quarter of 2016 is not expected to repeat again in the near future, noted HSBC. The Chinese government is attempting to ease the property market in the fourth quarter, but the effect on demand is expected to be limited as the policy this time is more targeted at easing down prices that are overheated at selected top tier cities. Moreover, the government is anticipated to keep infrastructure spending high in the years ahead.

Meanwhile, the government’s report states that around 50mt of steel capacity has been eliminated this year. It seems to be a good start; however, most of the capacity eliminated is expected to have been already idle or obsolete, so the impact on effective supply was small. The effect of the capacity elimination program is likely to deepen next year as more production capacity would be reduced, added HSBC. Moreover, stricter environmental rules are likely to result in additional supply disruptions and industry consolidation to continue in the next two to three years.

A steady demand environment, along with continued effort on supply reform and consolidation is expected to result in better capacity utilization and industry concentration in the long run. China’s crude steel production is expected to stay above 800mt from 2017-2019, where capacity reduces from 1200mt to 1100mt in the same period, said HSBC. Thus China’s steel industry utilization is expected to improve from around 69 percent now to around 75 percent by 2020, added HSBC.