Strong domestic demand in China and cuts in production capacity are leading to a more balanced market, said Kiyoshi Imamura from Tokyo Steel Manufacturing. The nation is building roads, railways and warehouses to bolster expansion, and shutting illegal and inefficient mills that cause pollution, he said. New service industries like online shopping can help absorb workers that lose their jobs, he added.
“China won’t trigger an imbalance of supply and demand, at least this year,” Imamura said in Tokyo on March 14.
“I strongly feel that prices won’t go back to the previous levels, because of China overproducing steel,” he said. The nation accounts for about half of global supply.
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The country has started the year on a firm footing, with macro data showing fixed-asset investment rising 8.9 percent in January and February from a year ago, and industrial output increasing 6.3 percent. The benchmark price of domestic hot-rolled coil in China has jumped 60 percent in the past year, and Imamura sees the metal staying at current levels of $500 (R6334) to $600 a ton.
Back in 2015, coil prices slumped 33 percent as Chinese exports of steel surged to a record 112 million tons. The deluge hurt global steel mills and prompted countries from India to the US to introduce import tariffs.
It even reached the level of a meeting of G-20 countries, which agreed to set up a group to address overcapacity.
Imamura visited four areas in China in December – Jinan, Chongqing, Shanghai and Wuxi – to study the market.
In meetings with the industry and users, he says he was inspired by the development of the economy and manufacturing.
While the media often highlights the woes of steel ghost towns, he said the metal was in shortage in most regions. “It’s something similar to situations in Japan’s economic boom of 1960s and 1970s,” Imamura said.
Like most mills, Tokyo Steel has benefited from the price rally. The shares are up 38 percent in the past year, outperforming a 20 percent gain in Japan’s top producer, Nippon Steel & Sumitomo Metal Corporation.