China has just shy of 10 times the steelmaking capacity of the United States. It has been accused of dumping cheap steel on the global market to beat out competitors. During his administration President Trump pushed China to cut production, and more recently, in , President Biden raised tariffs on Chinese style and aluminum too. During , China's steel industry has been declining, and making cutbacks due to slumping domestic demand as well as anti-dumping measures taken by a number of nations. At the same time, China remains by far the world's largest steel producer at over a billion tons per year, accounting for over half the world's production.
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While much of China's total steel production is domestically consumed, they are also the world's largest exporter of steel. In , China exported 94.5 million tons of steel, far exceeding steel exports in the previous three years.
In , China's economy founded itself in crisis. The real estate market was collapsing due to oversupply, local governments were in excessive debt, consumption was weak, and the population was rapidly aging. GDP growth was falling behind targets as well. In light of China's weakening economy lowering domestic demand, as well as anti-dumping measures taken by many countries, such as President Biden's tariffs, the outlook for China's steel industry is not great. With more supply than demand, the profits situation doesn't look good. That said, China remains the main player in the global industry due to its gigantic production. Here's a look at the state of the global steel industry more recently and the impact of the Chinese economy.
Anatomy of the Global Steel Industry
Steel is one of the most innovative and flexible alloys, which can be customized for many requirements. Variants of steel are used in housing, transportation, industrial, automobile, infrastructure and utilities sectors, making it one of the world's most versatile materials, one that's easily reused and recycled. (For more, read: Strength in Steel.)
China, India, Japan, the United States, and Russia were the top five steel-producing nations in , in that order, with China the leader by far. China produced around 1 billion tons. The next closest country, India, produced only 140 million tons. Japan produced 87 million tons, the United States 80 million, and Russia 75 million tons. While China and Japan are the top exporters of steel, the United States and Germany are the leaders for imports because of their economies' high consumption rates.
China is the world's largest producer of steel, and it is also the world's largest consumer of the material. Given such a dominant market share, along with the large amounts of steel used across different sectors of its economy, any slowdown in the Chinese economy will have a major impact on the global steel industry. The slowdown in the Chinese economy has left them with an oversupply of steel. Not only does this hurt the profitability of Chinese steel manufactures, but it also leads to China engaging in steel dumping which hurts the steel industry in other countries. The graph below shows what happened to the VanEck Vectors Steel ETF (SLX) in when the Chinese economy slowed down.
Image by Sabrina Jiang © Investopedia
Recent Developments
As of , steel prices are facing downward pressure as are the profits of manufacturers. This has been driven by slumping demand resulting from China's economic struggles as well as the supply gut also coming from China.
The World Steel Association reported that in July , global steel output fell by 4.7% relative to July . Producers are beginning to adjust to weak demand and oversupply.
As of late , it is expected that Chinese steel exports will remain high in . From their own perspective, China will attempt to remedy excess supply and weak domestic demand by exporting the steel they don't need. This has fueled further dumping fears. Many nations including Turkey and Indonesia have recently taken action to protect their domestic steel industry from cheap steel coming out of China.
In the United States, the steel industry is expected to see steady growth for the rest of the decade. The economy is strong and growing. With that, the demand for steel will grow too as it is used in so many products and industries. While trade tensions with China and environmental concerns are the industry's biggest problems, a renewed emphasis on American manufacturing should continue to boost growth.
By producing more steel that the rest of the world combined and exporting huge amounts of it, China is the single biggest influence on global steel markets. The rest of the world remains concerned about dumping from China due to excess supply, and many nations are taking action to protect their domestic steel producers.
China's steel industry, initially small and hindered by war, expanded rapidly following market reforms in , eventually becoming the world's largest producer. Despite this growth, the industry faced challenges with high debt, market volatility, and environmental pressures. Rising exports from - led to global oversupply, price drops, and tariffs, prompting China to halt new steel mill approvals and encourage overseas investments. China's central government has also worked to phase out unprofitable "zombie" companies while pushing for stricter environmental controls on steel production.
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China became the world's largest steel producer in the late s.[1]:&#;101&#;
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From the early s through both world wars, China's steel industry was small and sparsely populated. The industry's infrastructure which had relied on Soviet technology was mostly destroyed during the wars.
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The steel industry became a priority during the country's First Five-Year Plan period (&#;), when industrial development became China's primary goal.[2]:&#;67&#; Power plants, steel, mining, machinery, chemicals, and national defense were deemed high priorities.[2]:&#;18&#;[3]:&#;289&#; Among the large steel mills built or expanded under Soviet-style planning, only Anshan Iron and Steel operated close to the desired capacity by .[3]:&#;299&#; During this time, slow steel production hindered China's industrial growth.[3]:&#;299&#;
As a result, Chinese leadership mandated a major increase in steel production in late and early .[3]:&#;299&#; These efforts included major investments in large scale steel manufacturing as well as the reorganization of urban labor in an effort to produce steel at other scales.[3]:&#;299&#;
China underwent rapid economic industrialisation since Deng Xiaoping's market reforms which took place in .[4]
The steel industry gradually increased its output. China's annual crude steel output was 100 million tons in .[5]
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China produced over 1 billion tonnes of crude steel in , 52.9% of the world's total production,[6] and up from 123 million tonnes (121,000,000 long tons; 136,000,000 short tons) of steel in . After ascension to the WTO China aggressively expanded production for export and the growing appetite of local manufacturing industries such as automotive vehicles, consumer electronics and building materials.[4][6]
The Chinese steel industry is dominated by a number of large state-owned groups which are owned via shareholdings by local authorities, provincial governments and even the central authorities.[citation needed] According to China Iron and Steel Association, The top 5 steel groups by production volume in are Baosteel Group&#;Wuhan Iron and Steel Corporation, Hesteel Group, Shagang Group, Ansteel Group and Shougang Group.[7]
By raw materials such as Iron ore prices grew and China had to reluctantly agree to price increases by the three largest iron ore producers in the world; BHP, Rio Tinto and Vale.[4] During the &#; financial crisis, the Chinese steel mills won price reprieves as demand from their customers slowed. When the demand started to pick up again in and in , the price crept back up due to higher demand for automobiles, low interest rates, government fiscal stimuli around the world.[8] Prices for iron ore were negotiated on an annual contract pricing scheme.[9] [10][11][12] Australian iron ore producers were not happy that iron prices did not reflect Spot market pricing. In pressure from BHP and Rio Tinto to move to a quarterly based index pricing succeeded.[13] Many Japanese steel mills and Chinese steel companies had to follow as demand for raw materials heated up.[13][14][15] Spot-basis pricing has caused problems for steel manufacturers such as exposing them to price fluctuation in the market and reducing the stability of resource supply. Steel mills prefer long term pricing to hedge against cost and maintain raw material supply stability.[16] Rio Tinto has said it will cancel contracts and sell the steel on the spot markets if Chinese steel mills back down on the new quarterly pricing regime.[16]
In China was the largest producer of steel in the world producing 45% of the world's steel, 683 million tons, an increase of 9% from . 6 of 10 of largest steel producers in the world are in China. Profits are low despite continued high demand due to high debt and overproduction of high end products produced with the equipment financed by the high debt. The central government is aware of this problem but there is no easy way to resolve it as local governments strongly support local steel production. Meanwhile, each firm aggressively increases production.[17]
China was the top exporter of steel in the world in . Export volumes in were 59.23 million tons, a 5.5% fall over the previous year.[18] The decline ended China's decade-old steel export growth. As of steel exports faced widespread anti-dumping taxes and had not returned to pre- levels. Domestic demand remained strong, particularly in the developing west where steel production in Xinjiang was expanding.[17]
On 26 April a warning was issued by China's bank regulator to use caution with respect to lending money to steel companies who, as profits from the manufacture and sale of steel have fallen, have sometimes used borrowed money for speculative purposes. According to the China Iron and Steel Association the Chinese steel industry lost 1 billion Rmb in the first quarter of , its first loss since .[19]
As of the global steel market was weak with both Ukraine and Russia attempting to export large amounts of steel.[20] Weak domestic demand in resulted in record exports of 100 million metric tons of steel by the Chinese steel industry.[21]
In , China produced 49.6% of the world's steel.[1]:&#;101&#;
Efforts by the Chinese Ministry of Environmental Protection under the Action Plan for the Prevention and Control of Air Pollution has resulted in pressure on steel mills in Linyi and Chengde to employ environmental protection measures on pain of being closed down.[22]
In the context of lowered demand (see also &#;16 Chinese stock market crash), in the Chinese state announced large scale closures and redundancies in heavy and primary industries, many of which were functioning as zombie companies, with 1.8 million redundancies (15% of workforce) in the coal and steel industries planned to take place by .[23]
Amidst the Chinese property sector crisis and weakening demand for steel at a domestic level, China's steel exports surged in and , primarily going to developing countries. This glut triggered a substantial decline in the price of steel at a global level, which in turn prompted another wave of tariffs against Chinese steel from both developed and developing countries. The Chinese government responded to the steel glut by suspending approvals of new steel mills in August . Additionally, Chinese steelmakers hoping to retain a presence in foreign markets have increased foreign investments in steel mills abroad, hoping to remedy excess capacity.[24][25][26]
As of at least , the Chinese steel industry is highly fragmented, with a large number of companies.[1]:&#;101&#;
In December , Chinese researchers developed an iron-making technology that speeds up steel production, according to a published paper in the peer-reviewed journal Nonferrous Metals. The method injects iron ore powder into a super-hot furnace, which produces high-purity iron in just 3-6 seconds, compared to the 5-6 hours needed by traditional methods.[27]
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