Steel is essential to the modern world. It’s used to build buildings, roads, railways, and other infrastructure. For a developing country, steel is also essential for economic growth.

Steel production was a major pillar of Mao Zedong’s Great Leap Forward in 1958, when China took measures to modernize and industrialize the economy. The experiment didn’t end well, as they quickly learned that a bunch of small mills in people’s backyards was not the best way to produce steel.

Once they abandoned that idea, China’s economy, and steel production, grew. To fuel this growth, China poured massive amounts of money into construction, and it urged the country to expand steel production rapidly to match the growing economy.

This time the plan worked. China has relatively quickly become the second largest economy and the biggest steelmaker in the world. With a GDP of US$10 trillion, they account for roughly 13% of the global economy. Chinese steel production was 823 million tons in 2014 – accounting for half of the world’s total.

Steel is essential to the modern world. It’s used to build buildings, roads, railways, and other infrastructure. For a developing country, steel is also essential for economic growth.

Steel production was a major pillar of Mao Zedong’s Great Leap Forward in 1958, when China took measures to modernize and industrialize the economy. The experiment didn’t end well, as they quickly learned that a bunch of small mills in people’s backyards was not the best way to produce steel.

Tata Iron and Steel company, the largest steel plant in the British Commonwealth, plans to sell or shut down their British operations  . (Photo by Christopher Furlong/Getty Images)

Once they abandoned that idea, China’s economy, and steel production, grew. To fuel this growth, China poured massive amounts of money into construction, and it urged the country to expand steel production rapidly to match the growing economy.

This time the plan worked. China has relatively quickly become the second largest economy and the biggest steelmaker in the world. With a GDP of US$10 trillion, they account for roughly 13% of the global economy. Chinese steel production was 823 million tons in 2014 – accounting for half of the world’s total.

But now China’s economy is slowing down. The latest five-year plan focused on moving the economy from a focus on industrial production to consumption. They want more focus on improving living standards and dealing with their environmental problems. And importantly, the growth target dropped from 7.5% to 6.5%. (In a US$10 trillion economy, that 1% difference equals US$100 billion – that’s a lot of money for anyone.)

With less focus on rapid growth (even though 6.5% is still pretty high) there is less incentive to invest in construction. This has driven down the demand for steel, with the result being global steel prices slumping to a 10-year low.

The World Steel Association said China’s demand for steel dropped 3.5% in 2015, and will fall again in 2016. This has forced Chinese steelmakers to look outside the country for customers to buy all their extra steel. As a result, in 2015 China steel exports increased 25% to 112 million tons. That’s more than any other country’s (except Japan’s) total production. Their production costs are also subsidized by the Chinese government, so they are covered even if they produce steel at a loss.

 

Source : forbes.com

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