Steel demand will increase slightly in 2014

Abstract Overcapacity and high mineral prices have long been persistent challenges in the steel industry, yet they remain unresolved. At a recent 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, with de-capacity efforts still facing significant challenges. Due to the continued demand for steel, iron ore prices are likely to stay supported.

The Overcapacity Challenge

According to the latest forecast from the Metallurgical Industry Planning and Research Institute, global economic conditions are gradually improving, leading to a modest increase in steel demand in 2014. The institute estimates that total steel demand will reach 715 million tons, up 3.2% compared to the previous year, while production is expected to hit 810 million tons, an increase of 3.8%.

This growth rate marks a notable 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 plagued by serious overcapacity," said Li Xinchuang, president of the institute. He noted that the country's design capacity reached 1 billion tons in 2012, but actual production far exceeds this figure due to technological advancements and improved efficiency.

While most countries have seen a decline in steel output this year, China’s production has continued to grow. In January–October, China produced 652 million tons of crude steel, up 8.3% year-on-year. Meanwhile, global crude steel output fell by 1.3% during the same period after excluding China’s data.

“Much of the increase in steel production is driven by inventory and exports,” Li added. In the first ten months of 2014, China exported 51.972 million tons of steel, a 13.5% increase compared to the same period last year. However, international trade tensions are rising, making it harder for Chinese steel to find markets abroad. “Exporting excess capacity is not a sustainable solution,” Li warned.

Resolving overcapacity has become one of the top priorities for the steel industry. Li emphasized the need to absorb, integrate, eliminate, and transfer surplus capacity, especially by accelerating the removal of outdated production facilities. He also stressed that environmental and financial measures must be used to address the issue.

“Tackling overcapacity requires real action and won’t be solved overnight—it’s a long-term process,” he said. Despite cautious optimism about the market outlook for 2015, the industry’s profitability remains weak, and low margins are expected to persist for a long time.

Supply and Demand Imbalances Persist

Even as steel production growth slows, demand for iron ore continues to rise. The institute predicts that China’s demand for iron ore will reach 1.172 billion tons in 2014, up 3% year-on-year. Import dependency remains high, with over 70% of iron ore coming from abroad. It is estimated that China will import 845 million tons of iron ore in 2014.

Li explained that rising steel production supports iron ore prices, and only by expanding supply and breaking monopolies can prices return to reasonable levels.

Data shows that 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 reached $86.32 billion, with an average price of $129.1 per ton—a 2.4% decrease from the previous year. Australia and Brazil accounted for 69.4% of these imports, totaling 463 million tons.

“An import price of $130 per ton is still relatively high compared to production costs,” said Zhang Changfu, vice president of the China Iron and Steel Association. He pointed out that domestic iron ore and steel industries are not well synchronized, suffering from low industrial concentration, heavy tax burdens, and inefficiencies that make it hard to compete globally.

Domestic iron ore mining faces numerous challenges. Over time, the quality of domestic iron ore has declined, dropping from an average grade of 33% in 2000 to 28% in 2012. Poor resource endowments, outdated technology, and limited resource utilization have also slowed domestic mine development. Additionally, higher taxes place a heavier burden on local iron ore companies.

“The cost of domestic iron ore is significantly higher than that of international competitors,” said Yang Jiasheng, secretary general of the China Metallurgical and Mining Enterprise Association. He noted that the national mining industry’s tax burden averages 11.6%, compared to just 4–5% in Australia and Brazil. Domestic iron ore costs are 2.8 times those of Rio Tinto and 2.6 times those of BHP Billiton.

In response, Zhang called for stronger policy support for domestic iron ore mines, including investment in exploration and development. At the same time, controlling steel production volume, eliminating outdated facilities, and reducing inefficient output are essential to curbing iron ore demand at its source. The China Steel Association plans to continue developing iron ore price indices to strengthen China’s voice in global markets.