2017 PREVIEW: Chinese stainless steel production capacity cuts, environmental pressures will put brakes on growth

Metal Bulletin looks at the main factors that are leading many Chinese nickel industry participants to predict slower Chinese stainless steel production growth in 2017.

January 5, 2017

The main drivers of slower stainless steel production growth are the local government’s tougher stance on excess capacity and continuing obstacles for Chinese exports. Beijing’s curbs on real estate expansion and stricter environmental regulations will also hamper increases in Chinese stainless steel production this year.

Here are the key reasons for an expected slowdown in stainless steel production growth in China this year:

Cuts to excess stainless steel capacity
The Chinese government did not approve new domestic stainless steel capacity applications for 2017 as it continued to reduce excess capacity in the country. As a result, Chinese stainless steel plants have been forced to delay domestic projects planned for this year.

Tsingshan Group’s stainless steel investment in Indonesia is the most likely new stainless steel capacity to be put fully into operation in 2017, whereas new domestic Chinese stainless steel capacities have been unable to gain approval from the government, Metal Bulletin has learned.

Tsingshan Group’s Indonesian 1 million tpy capacity mill is expected to come on stream in the first quarter of 2017, as Metal Bulletin reported earlier.

Two other Chinese domestic projects, which were originally due to be put into operation in 2017, will delay their launch to 2018 at the earliest, broker China Merchant Futures (CMF) noted in its 2016 year-end annual report.

The two Chinese domestic projects are Shandong Xinhai Technology’s 2 million tpy 300 series new capacity and Chengde Group’s new 900,000 tpy new capacity based in Beihai City Guangxi province, according to CMF researcher Sam Xia.

In December, two Chinese stainless steel mills were also ordered by the Chinese government to cease production.

Jiangsu Delong Nickel Industry Co’s stainless steel facility in the Chinese city of Yancheng has been completely dismantled, following a shutdown imposed by the People’s Government Office of Jiangsu Province at the beginning of December, as Metal Bulletin reported.

Meanwhile, Shandong Jinhaihui Technology was ordered to dismantle its stainless steel capacity in the city of Linyi, Shandong province.

Stricter environmental check in China
Environmental protection is becoming increasingly important to the Chinese government, especially given greater public expectations for higher living standards and air quality.

The government conducted environmental checks in the stainless steel sector in August and December 2016, resulting in the suspension of some stainless steel melting and processing mills. Cuts to existing production coupled with restricted capacity expansion will be major limiting factors to output growth this year.

Stainless steel exports will face more pressure
The Chinese stainless steel export market is expected to face downward pressure in 2017. Chinese stainless steel exports will continue to attract anti-dumping duties from the USA and Europe this year, whilst Indonesian material will create more competition in the Asian market.

In 2016, Chinese stainless steel exports to the USA dropped significantly amid anti-dumping taxes on Chinese stainless steel products. The situation will become even harder for Chinese exporters after US President-elect Trump takes office on January 20, a stainless steel trader said.

China exported 3.5987 million tonnes of stainless steel between January and November 2016, up 15.47% year-on-year, according to the latest Chinese customs data.

Market participants attributed the large year-on-year increase to China having the cheapest production costs for 300 series stainless steel slabs using NPI, a comparatively depressed nickel price (compared with other stainless steel raw materials) in 2016, as well as depreciation of the Chinese yuan.

Of total Chinese stainless steel exports, 80% go to Asian customers, according to Chinese customs data.

However, newly-added Indonesian stainless steel capacity will squeeze China’s Asian export market share because of cheaper production costs in Indonesia as well as cheaper delivery to other Asian countries, the trader added.

Indonesia will be the next producing centre due to the easy availability of the raw material laterite ore, Tsingshan Group vp John Li said at November’s China nickel & chrome forum.

Possible cooling in the real estate industry
The Chinese real estate industry was very hot in 2016, which was one of the biggest support factors for stainless steel production growth. However, the sector will not see the same increases this year as the Chinese government continues to apply macroeconomic controls to cool the market.

The government has emphasised its commitment to curbing real estate speculation in 2017. At the Central Economic Working Conference held in mid-December in Beijing, the Chinese government said the main task for the Chinese real estate industry is house destocking and promoting the steady development of the real estate market.

Review of stainless steel output in 2016
Rises in the nickel price in 2016 was mainly attributed to earlier and much higher-than-expected stainless steel production growth over last year.

The three-month nickel contract on the London Metal Exchange rose by 35.2% in 2016 from $8,800 to peak at $11,900 per tonne on November 28, the highest level since July 6, 2015.

Total Chinese crude stainless steel production is estimated to have increased by 12.84% in 2016, according to Lin Kaiwei, the senior stainless steel researcher at Luzheng Futures.

Chinese crude stainless steel production in 2016 was estimated to be 26.46 million tonnes, compared to 23.45 million tonnes the year before, Lin said.

Chinese information providers Antaike and Chinese United Steel also gave stainless steel production year-on-year growth in 2016 at nearly 12%.