Implications Of Downturn In Steel Production In China For Global Trade

China’s Economic Downturn and Steel Production

The current economic situation have focused on internal consumption rather than the exports of the country and it ahs consequences beyond the borders. This is because China’s economy is more integrated with the economy of the world in terms of trade and investments. China’s import of resources has contributed to price boom of the global commodities. The current economic situation has intended to focus on the internal consumption of goods than the exports of manufactured goods. The reforms implied that the import of resources were very less and China has showed a growing interest in the import of steel, copper, coal and other mineral products which are important for the urbanization of the country. This is considered to be the major priority for China and the higher authorities are trying to bridge the gap between the rural and urban areas in the country through inland infrastructure development projects. These projects require a large quantity of metal and mineral products. Moreover, the modernization of railway system in China also requires a considerable amount of steel. This paper will highlight the implications of global economic downturn in steel production in China. It will also discuss the steel and iron ore resources in China.  In order to secure the mineral products to green technologies for long-term period, China will import significant quantities of rare earth from other countries. Moreover, the domestic supplier helps in making the country one of the largest reserve of mineral resources in the world (Roberts et al. 2016).

China has devalued the currency so that it can boost its exports and this is considered as the backbone of the economy. This devaluation is considered as strategic and it contributed to reactivate China’s export and the economic growth of the country. Moreover, economic growth is 10 % p.a. for the last three decades. The steel market conditions are improving in many regions in China, however the crisis is continuing in some regions. Growth in the production of steel is declining significantly over the past three decades. It has shown a sharp decline during the first months of 2016, however the decline is diminishing after March, 2016. The prices of steel are responding positively to gradual upturn in the production during the first half of 2016 although there was abundance supply (Oecd.org 2017).

After the decline in steel production in 2015, the demand for steel products has shown considerable signs of recovery during the first three months of 2016. The year-on-year consumption of steel has rebounded a positive terrain during the first three months of 2016. The figure below indicates the percentage change in steel production that is 72% of the global steel production (www.trade.gov).

Export and Import of Iron Ore and its Economic Downturn

Figure-Consumption of steel products in some major economies(Year wise % change)

Source-www.oecd.org

There has been modest upturn in the demand of steel that is observed from the beginning of 2016 in the major steel consuming countries. It has been found that the steel upturn in China has highlighted temporary measures to boost the aggregate demand in the real estate market and various steel inventories. The data that has been collected from National Bureau of Statistics has indicated that the value of sale of steel has been declining after June 2016. It can be said that the ongoing rebalancing process in the economy affects Chinese demand for steel. This has found decoupled China’s demand for steel and thus affected the GDP growth in China. The table below will highlight export development during 2016 in China (Coccia 2014).

Exporter	2015	2016	Change(2016/2015)	Change in %(2016-2015)
China	110,928	109,852	-1,076	-1.0

Fig-Export development in China

Source-www.oecd.org

The table above highlights the steel that is exported from China during the time period March-April 2015. Export has reached 110.0 mmt in 2015 in China and export has declined by 1 mmt during the first quarter of 2016. Moreover, export of China to Asian and other Middle East countries has significantly increased with the decline in the volume of steel export to other economies in 2016. In 2015-16, China has exported steel to the top 10 economies that is shown in the figure mentioned below. The export volume to Thailand has shown the highest increase i.e. 31.9% in 2015. It has been found that exports to India and Singapore has decreased from 2015 i.e. 30.1% and 8.1 % respectively (Oecd.org 2017).

Fig-% change in export of steel to top 10 markets from China

Source- www.trade.gov

In 2015, the import market share of China has increased for all the major destinations except India. The share of India’s steel import from China has decreased by 2.7% compared to 2014. Indonesia has shown a notable increase in its share of imports from China (telegraph.co.uk 2017).

Fig-China’s steel import Market Share

Source- www.trade.gov

Figure-China’s Export share of Steel Production

Source-www.trade.gov

The figure above has highlighted China’s share in export in steel production. It can be seen that steel production has increased between 2009 and 2014 but it has remained flat after 2014. There was no gap between production and consumption in 2009 but it has shown a wider gap with the passage of time. During 2009-2015, steel export of China has tripled from 4% to 13.8%. On the other hand, the export share in the production of steel has declined to 13.2% (www.trade.gov). The top producers of steel in China are shown in the below table:

Fig: China’s Top Steel Producer in 2015

Source:www.trade.gov

Steel production in China has spread across many countries. The country’s top 10 producers accounted for 275.6 million metric tons or 34.3% o of 2015.

The price of iron ore has risen by 75% approximately between February 2011 and April 2015. China consumes a major proportion of iron ore because it uses a small proportion of scrap in steel production. China has contributed more than 49% of the total iron ore production in the world. The import of iron ore fell by 8.9%  in 2016. The Government of China has taken initiatives in reducing the capacity of the steel sectors that will continue to become a headway. The demand for iron ore will slow in terms of volume for the upcoming years. It has been found  that the price of steel has remained the same because the domestic demand for infrastructure will continue to provide support. According to a report of the Financial Times (2017), the price of iron ore has is falling more by 4% because the global stock market prices has slipped and the traders are anticipating a moderation of steel demand in China. Moreover, higher ore prices ahs also encouraged domestic production in China (Ft.com 2017).  The iron ore producers prefer  a lucrative market than the steel producers who prefer that they should not pay higher prices for the imported ore, if  a major proportion of the domestic ore is exported to other countries.

China is the largest importer of iron. The total imports for China is 1.024 billion and it has exported  a major proportion from Australia and Brazil. There are numerous small exporters who has also exported a major proportion of iron ores to China. In 2003, China has defeated Japan and it has become the world’s largest importer of iron ore. In 2011, imports accounted for 686.7 Mt which was an increase of 11.0% in comparison to 2010 (Oecd.org 2017). The import of iron Ore in China has increased by 100 million metric tones and it has broken the record of 2015. The purchase of iron ore has expanded to 102.8 million tons in September 2016 from 93 million tons in December 2015. China has been trying to attract the miners of Australia and Brazil in large volumes to fulfill the demands of the steelmakers who are benefitted from the rising profit margins. The production of Chinese iron has shown a declining trend during the summer days. China also planned to cut the production of steel and aluminum during 2017 winter season ((Ng 2017). Thus, it can be said that the unprecedented figure of import of iron ore has become a speculation for China and it will help to lower the price of steel in the years ahead.

Conclusion 

Thus, it can be said that the economic growth in China relied on the exports of manufactured goods, industrialization and modernization in the economy.  The country is rich in the import of copper, steel and iron and this is considered crucial fit the economy of China. Among the top exporters of steel, South Korea, Singapore and Philippines has received more than 60% of the imports from China. The recent slowing in the steel production has reflected a variety of factors and it includes the policy measures that are introduced by the government of China. The demand for resources in China has been strong, this is reflected by the increasing price of iron ore, and thus this has contributed to the higher terms of trade in China. Moreover, with the development of Chinese economy, the consumption and production of steel are likely to increase in the near future and this will lead to a strong demand for iron ore in the future.

References

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Roberts, I., Saunders, T., Spence, G. and Cassidy, N., 2016, March. China’s evolving demand for commodities. In Reserve Bank of Australia Conference ‘Structural Change in China: Implications for Australia and the World’, Sydney (pp. 17-18).

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