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China''''s demand for steel to keep growing for a decade - 29 Aug 10

CHINA''S 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 per cent annually -- or a few years earlier if its rate remains higher.

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

"Chinese GDP per capita grew at a compound rate of 7 per cent between 1980 and 2008. Extrapolating current growth rates in urbanisation plus investment and trade propensity, our framework produces the result that peak demand for steel will be reached when China''s GDP per capita level is $US15,449 ($17,286).

"If China continues on its post-1980 trajectory of 7 per cent compound growth, China would reach this point during 2024."

The researchers say China''s per capita income was $US5449 in 2008, so it must almost triple to attain peak steel intensity.

"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 Ross Garnaut.

They are backed up by the Economist Intelligence Unit, whose Beijing chief 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.

"At the EIU in Beijing we do very detailed forecasts 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 per cent 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-July period.

China''s coal imports in the first seven months of the year rose 53.2 per cent compared with the corresponding period last year while iron ore imports for the period were off 12 per cent from last year''s record highs.Still, China is actively trying to diversify its resources supply lines away from the three major iron ore players, by investing in Africa and South America as well as junior Australian mining companies.

India is also coming into play as an emerging coal importer.

Aug 29, 2010 13:33
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