Posted on 01 Oct 2015
The Australian government expects Chinese steel production to plateau over the next five years at an average of around 806 million mt/year between 2016 and 2020 but believes China's currently high level of steel exports are unlikely to be sustained.
In its September quarter report released Wednesday, the Department of Industry, Innovation and Science forecast that China will produce 814 million mt of steel in 2020 compared with 823 million mt in 2014 and 810 million mt in 2015.
The modest steel growth outlook is at odds with those of the country's major iron ore miners BHP Billiton and Rio Tinto, which both believe Chinese steel production has much further to run.
Rio is holding onto its view that steel output will peak at 1 billion mt by 2030, while BHP downgraded its forecast in August to 935 million-985 million mt/year from 1.1 billion mt/year by the middle of the next decade.
The department sees Chinese steel consumption reaching 775 million mt in 2020 from 740 million mt this year. Last year Chinese steel consumption fell 3.4%. It predicts world steel consumption will grow around 8% through 2020 to 1.74 billion mt.
The government said Chinese steel exports grew 27% year on year in the first half of 2015 and are forecast to reach 110 million mt for the full year. But it said world steel consumption would need to "increase sharply to absorb future growth in China's steel output, which appears unlikely."
Platts calculates that at current steel production and export levels, China's steel exports could account for around 14% of total production this year, up from 11% in 2014 and 7% in 2013.
The department has predicted that Indian steel output will grow 35% over 2016-2020 to 124 million mt, while its steel consumption will reach 121 million mt by 2020.
Despite the conservative view of Chinese steel output, the department believes iron ore prices will bottom out at $50/mt FOB Australia next year before climbing to $67.20/mt FOB by 2020 as excess supply is removed from the market due to low prices.
However, it warned that China's residential construction growth rate "remains a key area of uncertainty and is a considerable risk to the price of iron ore."
The department has predicted world iron ore trade will grow around 12% to 1.55 billion mt by 2020 from 1.38 million mt this year.
