Steel demand will increase slightly in 2014

**Abstract** Overcapacity and high mineral prices have long been recurring challenges in the steel industry, yet they remain unresolved. Recently, at a high-level forum on iron ore development organized by the Metallurgical Industry Planning and Research Institute, experts highlighted that while steel demand is expected to rise slightly in 2014, overcapacity remains a critical issue. The task of reducing excess capacity is both challenging and urgent. Given the persistent demand for steel production, iron ore prices are likely to stay supported. **The Overcapacity Problem** According to the latest forecast from the Metallurgical Industry Planning and Research Institute, the domestic and global economic environment is gradually improving, leading to a modest increase in steel demand in 2014. It is estimated that China’s total steel demand will reach 715 million tons, up 3.2% year-on-year, while production is expected to hit 810 million tons, an increase of 3.8%. This growth rate, however, marks a significant slowdown compared to 2013, when steel demand rose by 6.3% and crude steel output increased by 6.7%. "China's steel industry has been suffering from severe overcapacity," said Li Xinchuang, president of the institute. "By 2012, the designed capacity had already reached 1 billion tons, and actual production far exceeded this figure." He added that technological improvements and better operational efficiency have led to production capacities that surpass design limits, worsening the overcapacity issue. Data shows that global crude steel production declined in most countries this year, with a 1.3% drop year-on-year after excluding China. In contrast, China produced 652 million tons of crude steel in January–October, a rise of 8.3%. However, much of this increase comes from inventory buildup and export growth. Exports reached 51.972 million tons in the first ten months, up 13.5% year-on-year. Despite this, international trade tensions have made exports more difficult, making it hard to rely on exports to absorb excess capacity. Li Xinchuang emphasized that resolving overcapacity requires a comprehensive approach, including absorption, integration, elimination, and transfer of surplus capacity. He stressed the need to accelerate the removal of outdated production facilities and address overcapacity through environmental and financial measures. “Resolving overcapacity won’t be a one-time effort; it’s a long-term process,” he said. Although the outlook for the steel market is cautiously optimistic, profitability remains weak, and low margins are expected to persist. **Supply and Demand Contradictions Remain Unsolved** Despite the slowing growth in steel production, demand for iron ore continues to rise. The institute predicts that iron ore demand in 2014 will reach 1.172 billion tons, a 3% increase from the previous year. Import dependency remains high, with over 70% of iron ore demand met through imports. It is estimated that 845 million tons of iron ore will be imported in 2014. Li Xinchuang noted that as steel production grows, rigid demand will continue to support iron ore prices. To bring prices back to reasonable levels, supply expansion and breaking monopolies are essential. From January to October, China imported 669 million tons of iron ore from 74 countries, a 9.9% increase compared to the same period last year. Total import costs amounted to $86.32 billion, with an average price of $129.1 per ton, down 2.4% from the previous year. Australia and Brazil accounted for 69.4% of these imports, highlighting the heavy reliance on foreign sources. Zhang Changfu, vice president of the China Iron and Steel Association, acknowledged that the $130-per-ton import price is still high relative to domestic costs. He pointed out that China’s domestic iron ore industry faces structural issues such as low concentration, heavy tax burdens, and inefficient operations, making it difficult to compete with international giants. Domestic iron ore development is also constrained by poor resource quality, with grades declining from 33% in 2000 to 28% in 2012. Additionally, outdated mining methods and limited resource utilization hinder progress. Domestic iron ore companies also face higher tax burdens, increasing their operating costs. Yang Jiasheng, secretary general of the China Metallurgical and Mining Enterprise Association, noted that the average tax burden for China’s mining industry is 11.6%, significantly higher than the 4-5% in Australia and Brazil. The cost of domestic iron ore is nearly three times that of major international producers like Rio Tinto and BHP Billiton. In response, Zhang Changfu called for stronger policy support for domestic iron ore exploration and development. He also emphasized the need to control steel production, eliminate outdated facilities, and reduce inefficient output. By addressing demand at its source, China can better manage its iron ore consumption. The association plans to further develop iron ore price indices to enhance China’s influence in global markets.

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