Chinese Discipline Helps Steelmakers Everywhere
By Dan Markham
on Apr 10, 2018
The Chinese steel production industry discovered a novel concept in 2017 – profitability. For years, China has lived by a “Damn the Bottom Line, Full Production Ahead” motto when it comes to steelmaking – an attitude the rest of the world has found kind of troubling, to put it mildly.
According to Philipp Englin, CEO of World Steel Dynamics, that focus changed quite a bit last year. The country eliminated 50-60 million tons of production and a theoretical 100 million tons of capacity last year, primarily by taking costly, inefficient induction furnaces out of play.
On top of that, Chinese consumption jumped from 707 million tons in 2016 to 766 million tons last year. The gains were driven by stimulus measures undertaken by the Chinese government to improve the nation’s infrastructure.
As a result of these items, Chinese producers moved from a loss of $100 per ton to profits of $130-140 per ton of steel produced last year. “If you reduce supply, increase demand, lo and behold you have a healthy industry,” Englin said last month at the Platts Steel Markets North America Conference in Chicago.
Of course, a healthier China also keeps the world from catching the flu. A more disciplined Chinese production industry, with fewer low-priced exports being shipped to all corners of the globe, makes it easier for steelmakers in every region to improve their margins.
Now, the question is how long will this new-found discipline last. “The sustainability will be tested beyond 2018-19,” Englin said. “The recovery in the global steel industry to date has really been a function in the change in Chinese exports. That change is pretty fragile.”
Until China reverts to old ways, however, the current environment offers “one of the best profitability conditions we’ve seen, probably ever.”
For more coverage of the Platts event, see the April issue of Metal Center News.