As China develops towards industrialization era, the demand of steel has expanded accordingly to the requests of industry. Investments in construction, manufacturing, infrastructure even national defense have driven the nation’s dramatic economic growth at an average of 9.7% per annum from 1989 to 2017 and thus its demand for steel. China is gradually changing from investment-led increase to consumer-led growth, further raising concerns about its future demand for steel.
However, significant changes in steel market scenery are observed in recent years, as China is suffering from considerate excess capacity despite its high demand for steel, as its economy tend to cool down, dropping to 6.5% per annum in 2016. As a result, China has to export steel into the global markets at extremely low prices, depressing prices of global steel markets and makes steel factories in other countries extremely hard to compete.
Meanwhile, government restricts steel and coal output due to the concern of inefficient steel mills and high pollution levels, resulting in increasing the global price of coking coal.
Local Chinese officials are under pressure to keep factories going due to frequent labor strikes and a slowing economy. Since most of the steel factories are owned by the state, Chinese producers can reduce prices of what they produce to keep factories busy much more easily, without being influenced by market.
Although Western countries fear China steel dumping, it is predicted that growing production of Chinese steel will be consumed domestically more, rather than overflow to global markets, since China is shifting the economy from relying on industrial exports heavily to meeting domestic consumer demand.
In addition, China needs to deal more severe problems itself. Any significant cuts in steel output would contribute to substantial job losses and potential social uncertainty, resulting from the boom of steel markets in the past few years.
Therefore, it is impossible for China to cut output substantially, and cheap exports are likely to continue to influence global steel markets considerably, unless domestic demand in China catches up.
However, low price doesn’t equal to cheap quality. It results from China’s large production capacity due to large local demand. Yet it is still risky for new buyer entering Chinese steel market due to a series of uncertainties. Through high-profile professional international trading and development company GBS Group, risks can be eliminated.
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Many small factories closed because of declining local demand. This creates risks for a new buyer, as they don’t know for sure whether the factory will actually deliver for the steel. Due to our great partnerships with factories and more than 20 years of experience with the Chinese market, we have a good knowledge of our mills to assure quality and service, through regular factory inspections and strict sourcing practices.
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Trading Economics China GDP Growth Annual https://tradingeconomics.com/china/gdp-growth-annual