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China steel imports surge 150% in 2020 on economic stimulus boost

Asian producers reap big benefits but supply glut fears persist

A man works at Hoa Phat steel mill in Vietnam, a country that has seen its steel exports to China increase by a factor of nine.   © Reuters

TOKYO/HANOI -- China's imports of steel increased by 150% to 38.56 million tons in 2020, according to the country's customs agency, as its producers struggled to keep up with surging demand fueled by government efforts to pull the economy out of a coronavirus-induced downturn.

As one of the world's biggest producers of steel, the country has been working to reduce capacity to eliminate a global supply glut. And despite the recent developments, fear of another glut persists and looms heavy over the international market.

For now, steelmakers across Asia are enjoying tailwinds from rising Chinese demand. Vietnam's Hoa Phat Group logged an 80% surge in net profit for 2020 to 13.5 trillion dong ($587 million) after its exports doubled. Most of its overseas shipments go to China, the company said.

Vietnam's steelmakers long suffered from an influx of cheap alternatives from China. But the trend reversed last year, when steel exports to China increased more than ninefold to 3.35 million tons.

"The supply glut originating in China feels like a lifetime ago," said the chief executive at one Vietnamese company.

Indian steel exports to China increased by a factor of 15 last year to 5.08 million tons. Tata Steel reported net profit of 39.8 billion rupees ($540 million) for the October-December quarter in a sharp turnaround from its 11.6 billion rupee loss a year earlier. Exports buoyed the company through the worst of India's coronavirus-induced downturn and -- combined with a recovery in domestic demand -- propelled Tata Steel to its second straight quarter of profits.

Japanese steelmakers also were quick to tap Chinese demand. Mini-mill producer Tokyo Steel Manufacturing resumed exports to China for the first time in a decade in July. "Smaller steel processors in China are also buying more semifinished products," said Kiyoshi Imamura, a managing director.

"Demand for steel products will remain high in 2021 as well," said another industry executive.

Big Chinese producers like China Baowu Steel Group have been cutting output since last spring, expecting demand to fall due to the pandemic. But government measures to reenergize China's economy led to a sharp uptick in demand, and domestic steelmakers could not keep up on their own. China imported more steel than it exported for the four months through September.

China's overall steelmaking capacity appears to have declined as well. The country scrapped 150 million tons worth of production capacity from 2016 to 2018, or over 10% of what it held at the end of 2015, according to the government.

Most of what China imported in 2020 were cheaper products for construction and other uses, with the average price of imports falling 35% to $630 per ton, significantly below the average price of exports at $791 a ton. The trend suggests Chinese steelmakers are focusing more on specialized, high-value-added products, like those used in auto production, and relying on foreign sources for general purpose items.

China is an outsize player in the global market for steel, and even a small shift there could ripple far and wide. Chinese demand totaled 980 million tons in 2020, according to the World Steel Association -- more than 10 times the demand in India, another major consumer of steel.

The price for hot-rolled coils, used in a variety of products from appliances to cars, has remained above $700 a ton this year in east Asia, more than 60% above its recent trough in May and its highest since 2011.

Growing demand at home has also led Chinese steelmakers to invest in neighboring countries.

"There's a growing trend of Chinese players importing steel from facilities they built in Southeast Asia," Imamura said.

Tsingshan Group, the world's largest producer of stainless steel, brought a blast furnace online in Indonesia in March 2020, partnering with other Chinese and Indonesian companies. Chinese steelmakers plan to build 30 million tons worth of new production capacity in Southeast Asia, according to the Japan Iron and Steel Federation.

These investments in Southeast Asia are driven partly by growing demand in the region, and partly by stricter rules at home to prevent another supply glut.

Beijing thinks excess capacity remains in China despite the recent surge in demand, and continues pushing for aging facilities to be shut down and consolidated. The government requires steelmakers to cut capacity by 25% to 50% when they rebuild an old furnace, for example.

The China Iron and Steel Association expects the current heavy demand fueled by infrastructure investment to peak around 2023. How long the trend of aggressive buying from overseas will continue remains unclear.

If demand falls, there is a risk that "excess steel products will flood into other markets again, and a glut will resurface," said Atsushi Yamaguchi of SMBC Nikko Securities.

Major Japanese players including Nippon Steel likely will face greater Chinese competition as they look to expand in Southeast Asia. With domestic demand and exports from home looking certain to decline further, Japanese steelmakers are putting local production for local consumption in emerging markets at the center of their strategy.

Nippon Steel looks to invest in existing production facilities in Southeast Asia and elsewhere. "We want to pursue overseas acquisitions going forward," President Eiji Hashimoto said.

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