Asia-Pacific Steel Price Outlook Remains Cautiously Optimistic Despite Weaker Chinese Demand and Oversupply Concerns

IndexBox has just published a new report: 'Asia-Pacific - Crude Steel And Steel Semi-Finished Products - Market Analysis, Forecast, Size, Trends and Insights'. Here is a summary of the report's key findings.

China's steel prices continue to level off from mid-May heights off the back of sluggish seasonal demand, declines in domestic manufacturer steel consumption and government pledges to curb “unreasonable” demand, despite tighter climate controls on steel production. Overall, Asia-Pacific steel prices are still set to stay elevated in the medium-term with support from robust infrastructure spending. However, concerns loom oversupply capacity expansions in South-East Asia and tightening of fiscal spending in China. 

Key Trends and Insights 

Steel prices rebounded strongly this year after a dismal 2020, which saw global steel demand outside of China plunging 10% amidst widespread coronavirus lockdowns. Prices of the metal worldwide hit a peak in mid-May off a robust rally that started in early 2021 and drove steel prices up by 30-40%, with prices for steel billet hitting a peak of $720 a tonne in China. This rise was fueled mainly by strong demand from China’s infrastructure, construction and manufacturing sectors, but billet prices have since levelled off to around $655 to $665 a tonne in Asia. 

Prices have also been pushed up by news on potential production restrictions in China, which produce more than half of the world’s total crude steel. In April 2021, the Chinese government announced that they would be putting into place environmental regulations aimed at the country’s steel industry, restricting steel production from outdated and heavily polluting mills. Tangshan, China’s largest steel-making city, has already implemented policies curbing its steel output by 30-50% throughout 2021, which would likely lead to a 30 million ton drop in steel production compared to last year. 

More recently, however, the rally was dented in May following a crackdown from Beijing on “unreasonable” steel prices. In response to concerns that the steel market was overheating, the Chinese government announced a series of measures to keep prices under control. Weak seasonal demand in summer and a June drop in manufacturer demand for steel have kept downward pressure on prices since, with some steel products down as much as 19% compared to the peak in May. 

In the face of this decline, analysts are cautiously optimistic in their outlook on steel prices for the Asia-Pacific region. IndexBox expects Asian steel demand to grow by near 5% annually until 2030, driven by India, China and South Korea. The growing automotive industry in Thailand, Malaysia, Indonesia, and Vietnam is also expected to increase the share of steel consumption in the region. 

However, there are concerns over potential steel oversupply: the tighter environmental regulations in China mentioned above have led Chinese investors to set up more steel plants in less-regulated countries in South-East Asia. Due to this, nearly 60 MT of steel production capacity is planned to come online by 2030 in the region. Tighter fiscal controls might also weigh down Chinese steel demand going forwards. The issuance of local government bonds, mainly used to fund infrastructure projects, is down compared to the same period last year for Q1 2021. Lower levels of credit are also projected to slow down investment in private property for H2 2021. 

Steel Production in Asia-Pacific

For the fifth consecutive year, Asia-Pacific recorded growth in production of raw steel and steel semi-finished products, which increased by 3% to 1,396M tonnes in 2020. The total output volume increased at an average annual rate of +4.4% from 2012 to 2020.

China (1,065M tonnes) remains the largest raw steel and steel semi-finished manufacturer in Asia-Pacific, accounting for 76% of total volume. Moreover, production of raw steel and steel semi-finished products in China exceeded the figures recorded by the second-largest producer, India (100M tonnes), more than tenfold. Japan (83M tonnes) ranked third in terms of total production with a 6% share.

Steel Exports in Asia-Pacific

In 2020, Asian-pacific exports of raw steel and steel semi-finished products declined to $5B (IndexBox estimates). In volume terms, overseas shipments stood at 11M tonnes, picking up by 6.3% against the previous year. 

Japan (3.8M tonnes) and India (3.1M tonnes) represented roughly 62% of total exports. Indonesia (1,184K tonnes) ranks next in terms of the total exports with an 11% share, followed by Viet Nam (9.2%), Malaysia (7.8%) and South Korea (6.9%). Taiwan (Chinese) (179K tonnes) held a small share of total exports.

In value terms, the largest supplying countries in Asia-Pacific were Japan ($1.5B), India ($1.3B) and Indonesia ($845M), with a combined 72% share.

The export price for raw steel and steel semi-finished products in Asia-Pacific stood at $450 per tonne in 2020, declining by -8.2% against the previous year. There were significant differences in the average prices amongst the major exporting countries. In 2020, the country with the highest price was Indonesia ($714 per tonne), while Japan ($386 per tonne) was amongst the lowest.

Source: IndexBox Platform