China's Competitive Steel Industry

Skeptics about the likely impact of China on the world economy should read this piece from the Economist. Apart from the evident impact on global trade, and the raw materials pressure, worthy of especial note is the comment about the modern and highly competitive steel industry (with plant contruction costs up to 60% below those of most other competitors).

Last year, China’s imports and exports had a combined value of about $620 billion and accounted for 4.7% of world trade—nearly double the country’s share of 2.7% as recently as 1995 (see chart). Such is the speed with which China’s industries are growing that the share is expected to jump again over the next few years.

Take the steel industry. China's steel producers are developing so fast that the country is likely soon to overtake Japan as the world's largest importer of iron ore, a crucial ingredient in the production of steel. Before long, China could turn itself from being a big importer into a net exporter of steel. In recent years, the country's steelmakers have invested heavily in new factories and in modernising existing ones. That investment is beginning to pay off. A decade ago, Asia as a whole accounted for about a third of the world's production and consumption of steel. Today, the figure is closer to half on both counts, with China alone accounting for a quarter of the world's output and demand.

China also boasts one of the world's most competitive steel industries. And the quality of its output is high. World Steel Dynamics, a consultancy, reckons that the cost of building steel plants in China may be up to 60% lower than most other big steel-producing countries. This gives the country's steelmakers a big advantage which, in turn, could help to boost the competitiveness of their customers.

One reason for the rising consumption of steel in China has been the insatiable demand for cars. They have been rolling off assembly lines in unprecedented numbers since the country's accession to the WTO pushed down prices of imports and so helped to stimulate the market as a whole. Last year, sales of new cars in China jumped by 56% to a record total of 1.13m units. Sales of new cars are likely to suffer from the travel restrictions imposed on China's population in order to defeat SARS, but the medium-term outlook for carmakers remains rosy.

Steel is not the only industry where China is starting to have an impact internationally. Energy is another. The growing need for cheap fuel with which to generate electricity to feed the country's economic boom is stoking demand for oil and liquefied natural gas (LNG). China is already the world's third-largest consumer of oil after the United States and Japan. The US Energy Information Administration reckons that, if China's demand for oil grows by a modest 3.3% a year, the country will be importing nearly 11m barrels per day by 2025.
Source: The Economist
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