The Steel Industry
Studying the Steel Industry and with the focus around China
Background of the Steel Industry
As of recent studies by IBISWorld, China’s top 10 biggest revenue by industries for 2021 is as follows.
- Building Construction in China: $2486.8b
- Real Estate Development and Management in China: $1957.1b
- Online Shopping in China: $1774.1b
- Residential Real Estate in China: $1529.5b
- Mail-order & Online Shopping in China: $1320.0b
- Bridge, Tunnel and Subway construction in China: $1261.5b
- Software Development in China: $1116.5b
- Steel Rolling in China: $952.1b
- Engineering Services in China: $885.5b
- Internet Services in China: $803.1b
Source: IBISWorld
As reflected from the research by IBISWorld, most of the mentioned industries consist of steel demand. Aside from the industry, China’s economy is currently growing and the need for infrastructure expansion is the main reason why we are looking into the steel industry.
Overview
As of 2020, the world produced around a 1.86million metric tons of crude steel. Steel is a mixture of iron ore and other elements. Steel is one of the key commodities for expanding economies. As infrastructures expand, demand for steel increases as well.
As of data in 2019, China is the largest crude steel producer, contributing to about 53.2% of the global production. Crude Steel production is expected to increase to almost 2 billion metric tons by 2022. The increase is partially due to the expected demand to grow. Projected demand is expected to reach 1.8billion metric tons alone in 2021.
In 2019, stainless steel amounts to around a 52.2million metric tons in production. Stainless steel is used in various industries such as construction, automotive, chemical processing, piping and polluting controls.
Trades within Steel Industry
In 2019, China was the largest steel exporter at 63.8million metric tons. The EU is the largest steel importer, importing 40.2million metric tons of steel.
As seen from the previous data, China has the greatest trade surplus while the EU and the US are the net importers of steel commodities.
We have also included the respective importers and exporters of stainless steel based on regions for the year 2019.
Segmentations / Breakdown
Below is the breakdown of both the steel and stainless steel in 2019. The majority of the steel consumption is going towards infrastructure expansion while stainless steel is mostly used by metal product-related sectors.
The global structural steel market is expected to grow at a 7.12% CAGR. Valuation is expected to reach USD503.8 billion in 2026.
Global steel demand for automotive and aerospace applications is expected to grow at a 3.6% CAGR. Valuations are expected to reach USD165 billion in 2026.
The global electrical steel market is expected to grow at a 5.92% CAGR. Valuations to reach USD22.5 billion in 2025.
As of 2019, Luxembourg and China are the 2 largest steel producers on the whole. ArcelorMittal produced approximately 97million metric tons of crude steel. China Baowu Group followed closely behind with an estimated 95million metric tons of crude steel production.
China Steel Industry
Despite the bullish sentiments about the steel industry, China is worried about the rising iron ore price. Aside from production, China is also striving to cut back on carbon emission as approximately 15% of carbon emissions are contributed by the steel industry. However, in the short run, steel demand will remain buoyant due to the steady pipeline of upcoming infrastructure projects.
Overview
As of 2019, China has produced 996 million metric tons of crude steel. The production accounts for approximately 53% of the global productions.
Raw Materials
In 2019, China has imported approximately 1.07 billion tons of iron ores. Of which, 62.21% comes from Australia, 21.33% from Brazil and the remaining 16.46% from the rest of the world.
The extraction of iron ore within China has accumulated to 844 million tons in 2019.
Australia currently holds the largest reserve with China fourth in the ranking.
Recyclable
In 2019, approximately 21.7% of crude steel output within the industry is from the recycling of steel scrap. This has increased over time due to the higher steel scrap trade adoption rate.
Additionally, about 215.9 million tons of steel were recycled in 2019, which contributes to the overall increase in China’s steel productions.
Overall Steel Producers
As of 2019, the leading steel manufacturer is Baowu Steel Group Co Ltd, producing approximately 95.47 million metric tons of crude steel. Their production is about 9.5% of the entire China steel production.
The state-owned Baowu Steel Group Co Ltd generated approximately CNY552.2 billion in revenue in the year 2019. The company has seen a 10.84% CAGR over the years. They are also the second-largest stakeholder in steel making globally. They have a subsidiary, Baoshan Iron and Steel Co, both of which are listed in the Shanghai stock exchange.
The second-largest steel producer is HBIS Group Co Ltd which generated approximately CNY354.7 billion in 2019. They have had an approximate 3.98% CAGR over the past six years. They are state-owned and have a subsidiary, Hebei Iron and Steel (HBIS) Co Ltd, listed at the stock exchange in Shenzhen, China.
Risk
There are currently two risks that could affect the industry. The first is the worsening of the economy due to the pandemic. The second is the ongoing tension between China and their biggest supplier, Australia.
Given the current pandemic situation, it has slowed down infrastructure development. Steel price has decreased as well, hurting companies’ margins. These two combinations might hurt steel companies moving forward.
As iron ore prices are dependent on the steel demand, the price may fluctuate depending on the industry outlook such as the overall supply and demand globally. In the near future, the ongoing tensions between China and Australia will continue to create uncertainties for the future as Australia is one of China largest iron ore suppliers, amounting to approximately 60% in 2020.
Source: Global Times, Credendo, China-Briefing
