Will Global Steel Ride China Rail to Turnaround?

Will the global steel industry hope achieve a turnaround in 2017 riding on Chinese rail?

Amidst rumours of a bleak global industrial scenario, the outlook for global steel production for 2017 looks to be marginally better. As per World Steel Association (WSA) data, global steel demand would grow by a marginal 0.5 percent to 1,510 million tons (mt) in 2017 compared to 1,501 mt in 2016.

And the very basis of this optimism rests on China. The world could hope for lower volumes of dumped steel from Beijing in 2017 as the Asian giant would be getting into massive logistics infrastructure building, which would entail use of much of it steel production.

According to a recent report, China would produce 825 mt of crude steel in 2017, 0.5 percent up from 2016 and in all probability would consume 87 percent of this production.

A lion’s share of steel production would be utilised in building a 30,000-km nationwide rail network incurring $504 billion, connecting 80 percent Chinese major cities within 2020. Of this, $117 billion is likely to be invested in 2017 alone. As a result, Chinese domestic demand would narrow the global steel market surplus to 3.2 mt in 2017 from 10.9 mt in 2016.

Citing the overall near-term steel demand as stable and improving, global analysts noted that infrastructure spending has been increasing, while reduced property inventories in lower-tier cities should result in a rise in new start-ups. Globally, many regions are showing signs of improved demand, from the economic recoveries in Brazil and India.

Terming these potential investment as credit stimulus, a recent research report notes that this kind of positive vibes on the macro economy can be expected to last for 4-5 years when injected through infrastructure plans. This is because it can take longer to build railways, subways and other steel-heavy projects.

Another good tiding is the emergence of India, Russia and South Korea in the global steel export market.