Chinese demand for steel to keep growing

Chinese demand for steel to keep growing for a decade

Bloomberg reported that China voracious demand for steel will keep growing for at least a decade helping to sustain Australia's mining boom.

Chinese steel demand is still low on a per capita basis and will not peak until 2024 if GDP grows at about 7% annually or a few years earlier if its rate remains higher.

Mr Huw McKay Westpac economist, Australian Bureau of Agricultural & Resource Economics commodity analyst Mr Yu Sheng and Australian National University associate professor Mr Ligang Song said “The path that China takes from here will have profound implications for the global demand and supply balance.”


They said “Chinese GDP per capita grew at a compound rate of 7% between 1980 and 2008. Extrapolating current growth rates in urbanization plus investment and trade propensity, our framework produces the result that peak demand for steel will be reached when China GDP per capita level is USD 15,449. If China continues on its post-1980 trajectory of 7% compound growth, China would reach this point during 2024.”

The researchers said that China per capita income was USD 5449 in 2008, so it must almost triple to attain peak steel intensity. They said “Based on this projection, in per capita terms, China's demand for steel will be higher than the peak level reached in the West, but lower than the peaks seen in Japan, Korea and Taiwan.”

The findings are to be published in an upcoming book on China edited by Mr Ross Garnaut.

They are backed up by the Economist Intelligence Unit, whose Beijing chief Mr Stephen Joske told The Australian “China is likely to surprise on the upside in its output of key products such as steel, cement, electricity and cars over the next decade.”

He said that "At the EIU in Beijing we do very detailed a forecast of long term supply and demand by province and it paints a very strong picture overall. For China we have the quantity of steel produced rising by around 60% between now and 2020."

Once self sufficient in coal, China has turned to importing the resource, particularly the harder metallurgical or coking coal that is used in steelmaking and of which Australia is prime supplier. Figures released yesterday showed that China imported 94.2 million tonnes of coal in the January to July period.