World Steel Dynamics and the Association for Iron & Steel Technology co-hosted the forum, now in its 40th year, counting events held under the predecessor Steel Success Strategies banner.
“We’re now continuing what is a three-year trend of rising Chinese steel exports and anaemic-to-declining global steel demand,” Englin said.
Within China’s steelmaking, a plunge in domestic demand has pushed down the price of hot-rolled coil to about $375 per tonne, excluding value-added taxes, he said.
World Steel Dynamics, which tracks 35 major steel plants in China, finds that for the second consecutive year, the domestic price for HRC has fallen “well below the marginal cost of production.”
“It’s clear that that the [steel] industry in China is suffering greatly,” the speaker added. “As a result of this, exports are at an all-time high.”
So far this year, Chinese steel exports are up 9% from the record-setting level of 124 million tonnes last year, surpassing the prior record of 122 million tonnes in 2015, Englin said.
Global export price
Global steel demand outside China is also likely to decline this year by 2% from 2024 levels, excluding India, where demand is rising, Englin said.
As a result of China’s surging exports, the world export price, including freight, is at a loss-making level, “resulting in what we see as a death spiral condition that’s now been in effect for two years, putting it below the cost of production for a sustained period of time,” Englin said.
Current adverse conditions do, however, incentivize China to take steps to rebalance an unsustainable situation, following the precedent it established when it took steps to “burst the property value bubble,” according to Englin.
Starting in 2020, China cut off financing to major Chinese real estate developers, resulting in major bankruptcies and an estimated total banking loss of $500 billion, the CEO said.
“It certainly gives me optimism in the next handful of years that the oversupply situation in the Chinese steel market may ultimately be addressed… in a way that may very well resemble the property sector experience, where in many ways the private sector was squeezed at the expense of the public sector,” Englin said.
“And certainly there’s a dynamic of that in play in China, with 30-40% of steel production in the hands of private entrepreneurs. So there’s an opportunity there to right size the industry, especially as demand continues to decline in China.”
Workforce decline
Demographic trends may also provide an additional incentive, given an expected decline of 50 million people in the working age population over the next five years, the speaker noted.
“The need to maintain steel production for the sake of employment lessens,” Englin said.
The workforce in steel is an older workforce on average and “we will see some of that attrition of working age folks lead to a much easier path [forward] for the industry,” the CEO said.
Scrap reservoir
China’s reservoir of scrap steel will experience a “massive” increase in the coming decades, providing “another key incentive to both downsize and ultimately alter the landscape of the country’s steel sector,” Englin said.
As China replaces blast furnaces with electric-arc furnaces (EAFs), private entrepreneurs will likely be motivated to invest in EAF mills because they are more profitable and, in the process, reduce overall capacity in the nation as a result, the CEO suggested.
“All of these things could add to a natural path to a much smaller steelmaking footprint in China that still meets the country’s objectives, in many ways stimulating growth through fixed asset investment,” Englin said.
Growing protectionism
Looking beyond China, a global surge in protectionism, starting in 2015, “appears to be working” to improve profitability, the CEO said.
As a result of protectionist measures, “profits in most regions are significantly higher than they were in 2015 and 2016.”
“The only reasonable explanation I can offer that is that some degree of protectionism [is] having an impact,” Englin said.
“A consensus among most folks [is emerging] that additional measures will be taken, need to be taken, and depending on the path that industry sets for itself, will be taken,” he said.
Current trends are also likely to disincentivize investors from overexpanding steel industry capacity in the coming years.
“I’m an optimist, in the sense that investment incentives will act to limit the pace and extent of any expansions of supply, helping rebalance the industry on a more sustainable path,” the CEO said.
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