How will the tide turn in Asian steel markets in 2024?

• China's steel exports likely to remain high in CY'24
  
  
• Mild-to-moderate demand growth expected in advanced Asia
  
  
• Carbon taxes, border regulations to hit emerging Asian economies
  
  

The steel industry in Asia reflects growth and dynamism in terms of investments in new capacity but it is also beset with many challenges. India remains the brightest spot on the global steel map, while the overall economic outlook in 2024 is expected to remain stable. However, growth in China may contract to 4.1% and Japan and the US, too, are likely to face economic contraction, observed experts at Asia Steel Markets 2024 conclave organised by Kallanish in Vietnam.

Fundamental steel demand dynamics are not significantly different from last year even as monetary tightening policies are weighing on demand, although India and the ASEAN continue to show resilience.

China: Exporting deflation?

In China, real estate is showing negative growth, and even though retail sales are increasing marginally steel demand in CY'24 may just sustain the levels witnessed in 2023 - with government support. Exports, though, increased substantially by 40% last year reaching the levels of 2015-16.

The Chinese economy is battling deflation and exports are a way out to plug the widening gap in domestic demand. However, inundating world markets with steel, as previous experience suggests, is just one of the ways China is exporting deflation globally, experts contended.

In the domestic Chinese market there has been a marked shift in production toward flat steel products. As construction is not doing well, mills have shifted to HRC and coated products and the focus is on exports, as oversupply in HRC and HDG in the domestic market leads to exports. China's net exports in CY'24 will stabilise and shipments are likely to remain under 100 mnt.

Value-added steel products are China's focus and the Middle Kingdom is exporting most of its flat products to South East Asia and the Middle East - nearby vulnerable markets - which support Chinese exports due to scale and distance. Vietnam's imports accounted for a major share of China's exports last year. Turkiye, UAE and South America were the other leading export destinations.

Chinese steel demand is not recovering even in the peak construction season and global demand remains mediocre amid recession even in advanced economies and political upheavals bringing with them increased economic risks. While steel raw material prices have moderated to an extent, most of the decline, it is believed, has already happened.

Emerging dynamics in Japan, S. Korea

The advanced East Asian economies are expected to witness GDP growth of around 5% in the current year and fixed asset investments are improving marginally. Industry analysts at the summit pointed out that in South Korea moderate GDP growth is expected in CY'24 supported by automotive exports with semiconductor supply chains normalising. Exports of electric vehicles (EVs) will stand out. Construction sentiment is improving and steel demand is expected to increase due to improvements in the manufacturing sector.

In Japan, real and nominal GDP may show moderate growth this year on easing supply constraints in the auto industry and improvements in the services sector. However, steel output in CY'23 dropped to 87 mnt as demand from the machinery and auto sectors remained lacklustre. Housing and residential construction did not show a strong performance either amid elevated construction and labour costs. Consumption is expected to remain at the same level as that of last year.

Steelmaking costs, however, may remain elevated for longer due to energy, electricity prices. Mills have to convince end-users of the pricing scenario and seek to reach a consensus.

Challenges facing Vietnam

On the other hand, the Vietnamese steel industry had a difficult 2023. Consumption of steel fell by 5% y-o-y to 28.5 mnt. The key challenges confronting steelmakers are finance and liquidity issues. Government investment in public infrastructure and an enabling monetary policy will be the principal demand drivers, as per market watchers.

Production and consumption growth, as per the Vietnam Steel Association, should be in the range of 5-7% in CY'24. However, steady inflow of imports of Chinese steel is a threat to the domestic industry, especially in terms of capacity utilisation and prices. Vietnam was China's top export destination in CY'23.

As a major steel exporter, Vietnam witnessed its steel exports rising by 32% y-o-y to 11.3 mnt last year. However, with measures such as the EU's CBAM to be introduced from 2026 onwards, the costs of Vietnam exporting HRC and colour coated steel - comprising 90% of total exports - will naturally shoot up.

Technology transition

Of course, with around 70% share of Japan's crude steel production and around 90% of China's, the dominance of the BF-BOF route raises concerns around sustainability and steel scrap is the silver bullet, although unavailable in required volumes for industry transition. This is the overall picture in Asia.

JFE Steel in Japan has closed one blast furnace in September last year and it is believed that ultimate transition to EAF technology will be inevitable for carbon-neutral steel production. In Asia the problem is accentuated due to the relatively young fleet of BFs in India and China which collectively produce close a billion tonnes of steel every year. It is widely believed that technologies around BF and carbon capture will be game-changers in this make or break decade for the industry, technical specialists stated.

In the long term, of course, the dominance of BFs has to make way for EAFs and green reductants. Carbon taxes and enabling legislations will only tighten the noose around CO2-intensive steelmaking as manufacturing of low-carbon metallics and raw materials shifts to geographies such as the Australia, the Middle East, etc. due to cheaper renewable energy and proximity to raw material sources.

For steel producers, however, the electric smelting furnace (ESP) currently being piloted by major iron ore miners and steel producers in Australia and other parts of the world, promises to use high-gangue iron ore in DRI and HBI production. This might ensure that vast volumes of low-grade ore will find direct application in metallics and steel production, thereby enhancing global DRI production to supplement scrap as a feedstock for lower CO2-emitting steelmaking processes.