PSI Blog

The Corona Pandemic: Challenges and Opportunities for the Chinese Steel Industry

27 May 2020 - Production, Technology, Industry 4.0

© domin_domin/iStock; edited by PSI Metals

Since the beginning of 2020, COVID-19 has kept the whole world on tenterhooks. The outbreak is a human tragedy with increasing impact on the global economy. The Chinese steel industry is also suffering increasingly from the consequences of the global pandemic. After all, it is an important supplier to the automotive and construction industries and is therefore close to the pulse of the Chinese economy.

Organized by the Chinese Metals Association, Mr. Gan Yong, Academician of the Chinese Academy of Engineering, held an online event entitled “Opportunities and challenges for the Chinese steel industry during and after the pandemic period” on March 30, 2020. The following content is based on the conclusions of this event.

Future Global Trends in Economic Development

Before we analyze the impact of the COVID-19 pandemic on the Chinese steel industry, let us take a brief look at future global trends in economic development:

  • Over the next 10 to 15 years, global economic growth will slow down as trade protection increases
  • A large number of new technologies will be widely used, such as artificial intelligence, genetic engineering, new manufacturing technology, etc.
  • The global production landscape is subject to far-reaching changes:
    • Developed countries are reviving the manufacturing industry and trying to maintain the leading position in the global industrial chain
    • The manufacturing industry in the emerging countries is attempting to shift to the mid- to upper-market segment, but the restructuring process is facing major challenges
    • Countries with rich resources but underdeveloped economies are at the lower end of the industrial chain and have enormous difficulties to move up
    • Global manufacturing services are advancing rapidly

In recent years, the share of the Chinese manufacturing industry in the GDP (Gross Domestic Product) has fallen rapidly. China ended last year wheezing, with official growth rates at their lowest since 1990 and with confidence shaken by years of trade war with the United States. In 2017 and 2018, it was below 30%, which is actually a warning benchmark. If the situation cannot be reversed, there is a high risk of "de-industrialization" or "industrial hollowing". 

In trying to estimate how painful the outbreak will be for the world's second largest economy, most analysts refer to the SARS outbreak in 2003, which affected China's growth rate by an estimated 1 percent or even more.

It is now, however, generally agreed on that the corona virus will have an even greater impact than SARS since the Chinese economy is much, much bigger than in 2003, but at the same time more vulnerable to disruption than before.

Effects of COVID-19 on the Chinese Steel Industry

In 2019, China's steel industry developed well and increased its share in world steel production - crude steel production accounted for 53.28% of total world production. Compared to the profitable year 2018, however, margins and price volatility declined.

In 2020 the corona virus is now paralyzing the once flourishing industry and steel producers are facing enormous challenges such as:

  • Increasing stocks and big pressure on cash flows
  • Difficulties in organizing logistics and increasing logistic costs
  • Decline in downstream demand
  • Challenges in the organization of production for contracts

Consequently, the pandemic will lead to a decline in profits in China's steel industry, an increase in capital occupation and a rise in the debt ratio.

As of March 2020: Rate of resumption of work in China © iStock: andresr, alex-mit, Canetti, PhonlamaiPhoto, bfk92 & richard johnson; edited by PSI Metals

Opportunities for the Chinese Steel Industry after the Pandemic

As they stride through the valley of the shadow of death, economists begin to look to the post-covid world to come. And sometimes the change is so vast and disruptive that it is difficult to distinguish disaster from opportunity. Besides many challenges, they also see acceleration. For example, the pandemic greatly contributes to the accelerated use of advanced technologies. With government support and research funding in AI technology, it is expected that the process of digitalization of traditional industries will be shortened. During and after the pandemic, further support for genuine mergers and acquisitions is expected to facilitate industrial concentration, and further support for low-carbon production technologies, as a boom in environmentally friendly technologies and equipment is being forecasted. 

Optimists take a positive view on the situation – in the acceleration they see new opportunities for reinvention, resurrection even. Pessimists tend to see inefficiency and insularity as a burden on profitability for many years to come. A special development that is worth a closer look is, either way you look at it, the increased investment in the new infrastructure during the corona pandemic.

Investing in New Infrastructure

New infrastructure refers to government investment to compensate for insufficient private consumption during the economic downturn and to resist the risks of economic slowdown and recession.

Traditional Infrastructure vs. New Infrastructure © PSI Metals

As far as traditional infrastructure is concerned, the steel supply is in good condition, apart from some weak areas. According to experts, the key to overcoming the negative effects of COVID-19 in the future lies in the production of material to support new infrastructure.

Steel Demand in the Key Areas of New Infrastructure

  • Information Network based on 5G, including big data, cloud computing, AI and IoI
    --> demand for: optical fiber/base station tower, big data infrastructure
  • Energy Network based on electric power network: UHV, Photovoltaic wind power and nuclear power, new energy charging station
    --> demand for: power-base stations, charging stations
  • Road Network based on high speed train and intercity rail
    --> demand for: rail track and railway accessories

The demand for steel in the key areas of the new infrastructure consists mainly of special steel and alloy steel, including heavy rail, stainless steel, bearing steel, axle steel, spring steel, wheels, and high-magnetic silicon steel.

At the same time, the application of advanced technologies, especially artificial intelligence, big data and the industrial Internet of things will become the cornerstone for the future development of China's steel industry.

“This too will pass”

At the end of March, China was in the process of tentatively reopening some factories and reversing some of its shutdowns. This pointed to a v-shaped recovery that depicted a blunted Sufi stoicism: "This too will pass." Since then China’s economy constantly is showing distinct signs of recovery. The rest of the world will follow soon.

Please read also:

Chinese Steel Market: 5 Trends for 2020

When you talk about the Chinese steel market, you perhaps think of “quantity-based”, “fast growing” or “state owned” industry. In recent years the Chinese steel industry has undergone a major transformation, which could even be called a restructuring. In this article we want to share a few keywords to give you an overview of the latest developments in the country’s industry.

What is your opinion on this topic?

Tracy Gu

Business Development PSI Metals 

Having worked in various areas within PSI Metals, Tracy's heart beats for sales and communication with the market. With the intensive experience she has gained in both the Chinese and European markets, Tracy enjoys the broad horizons and insights that both sides offer. In her free time she likes to travel and spend time with her niece. 

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