***SPOTLIGHT: Chinese whispers — cooling the dragon’s heat

The growth of China’s economy is slowing down. This begs some important questions.

The growth of China’s economy is slowing down. This begs some important questions.

Over the past decade, economic development in China has been the only story in steel. It’s been the predominant driver of commodity price inflation in general, actually.

Some analysts believe China’s exports and imports have had a balancing effect, compensating for deficiencies in other markets around the world. Others, many of them in North America, called them disruptive.

Either way, China now accounts for very nearly half of global steel demand.

So, now the growth of this monster economy is slowing down, what does this mean for the world of steel?

Well, it’s no reason to panic. Slower growth doesn’t mean no growth at all. And that means demand for steel will continue to rise.

Per capita steel consumption in China’s coastal regions looks like its topping out — these areas are largely developed.

But inland, rural provinces are way behind.

Investment in railways, roads and residential real estate in these areas seems certain to continue apace, demanding large amounts of steel.

And, while this is happening, China’s growing middle class will help drive demand as well.

Aspirational lifestyles demand steel-intensive goods. The vast majority of the country’s population still doesn’t have a licensed Chevrolet, Volkswagen or Nissan on the driveway.

Most households don’t have a washing machine or a dishwasher in the kitchen either.

But Beijing is now working much harder to control this growth, and guarantee a sustainable future. The government wants to make sure more of the value emanating from its economic growth is captured within Chinese shores.

That’s why Cisa is now really concentrating on knocking capacity growth on the head, focusing the steelmaking sector on efficient facilities able to produce high-quality, premium grades of steel.

The Chinese government’s efforts to cool the real estate market are a big reason why growth in demand is slowing. In May, for example, Chinese auto sales rose by the least amount recorded in the past 13 months.

This new drive is designed to ensure long-term, sustainable growth.

Unfortunately for many steelmakers overseas, lower Chinese growth rates probably mean much lower trade.

According to the latest Iron and Steel Statistics Bureau (ISSB) figures, between June and August this year Chinese steel exports fell by more than 50%, reducing pressure on adjacent markets. But year-on-year import figures are down as well.

That’s why mills are looking for new sources of demand for steel that don’t rely on China. Fortunately, there are plenty around.

Some savvy steelmakers, for example, are following automotive and white goods manufacturers into other Asian markets.

In May this year Indian automobile dealers posted the highest ever unit sales stats. This growth was focused in the commercial vehicles segment. But sales of passenger cars and utility vehicles also grew strongly as well.

In Vietnam, automobile sales fell sharply during the economic slowdown of 2008. But now they are rising again. They are soaring so fast, in fact, that manufacturers aren’t able to keep up with demand.

That’s why a host of high-quality auto sheet producers are putting together plans to open capacity there.

Home to around 238 million people, making it the world’s fourth most populous country, Indonesian consumer demand can’t be far behind. It’s already growing — during the first half of this year Indonesian auto sales rose by 76% year-on-year, with 370,208 units leaving the lot.

Led by Brazil, Latin America is growing as well.

Largely self-sufficient in energy, particularly oil, and home to growing populations getting wealthier on the back of mineral exports to China and further afield, these countries’ consumption figures are set to keep rising.

There are many reasons for the steel industry to be hopeful, then. But the great danger for much of the industry will be whether individual companies are positioned to take advantage of this shift in demand.

The Stockholm Selection starts next week. Straight off the bat, we’ll be looking at companies who are doing just that. Stay tuned.