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Randy Kirk
4/6/11
Steel consumption in China represented approximately 48% of world total in 2009. Most
analysts have noted the incredible amount of steel consumed in China in 2009 ʹ over 560
million tonnes ʹ without going shedding light on how much infrastructure and consumer goods
this massive quantity of steel actually represents. The analysis presented in this section will go
beyond these existing analyses by calculating, based on publicly available sources, the end use
demand of steel in China.
Steel consumption is calculated for China for infrastructure (skyscraper, residential apartment,
expressway, rail lines, airport, bridges), energy (oil pipeline, refinery, power plant), factory and
warehouse, container, automotive, bridges, shipping, machinery, defense and other in this
report. Results are presented in figure 2, with sources and estimates included.
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The majority of analysis by the major iron ore exporters (Vale, BHP and Rio Tinto)(Annual
Reports, Vale, BHP and Rio Tinto) as well as the major steel producers worldwide (Baosteel of
China, Arcelor Mittal)(Annual Reports, Baosteel and Arcelor Mittal), the major steel trade
organizations (the World Steel Association) and consultancies (the McKinsey Global Institute)
(McKinsey, 2009)have provided cursory analysis of Chinese steel demand to a public audience,
preferring to present overall consumption numbers per capita of steel, urbanization rate
statistics and average consumption of steel intensive goods, such as automobiles, per capita.
The leading sources of information concerning steel statistics within China ʹ Steel home (a
joint venture set up in 2004 between the Chinese government and Shanghai based
entrepreneurs to provide data on Chinese steel usage) (SteelHome, 2011) ʹ and the National
Bureau of Statistics of China (NBSC, 2011)do not provide detailed steel consumption figures
per application within China, only overall numbers of total consumption and across regions.
In so far that China can be seen as two or more countries ʹ a relatively wealthy coastal region
and a relatively rural central and eastern region ʹ an analysis of steel usage per capita would
not accurately capture several aspects of Chinese steel consumption, as it is unlikely that China
will fully urbanize to western rates within a decade. Equivalent numbers of steel consumption
per capita in China verses western countries (note that China surpassed the US in 2011 based
on steel consumption per capita) will likely mean much higher steel consumption per capita in
urban areas in China ʹ however per capita statistics will not shed light on which application of
steel (construction, energy, auto, expressway, etc.) is used in the higher steel intensive areas.
Note that it is likely that internally, the major iron ore and steel producers have much more
comprehensive analysis of steel consumption in China, however, for the purposes of
impressing investors, only a brief analysis is presented. For example, Vale, it is 2010 Investor
Day´s presentation, presents the following chart to support the continued growth of steel
consumption in China, which can hardly be called comprehensive in scope.
Perhaps the most comprehensive publicly available analysis is a 2010 report by the Reserve
Bank of Australia ʹ as Australia is heavily dependent on mineral exports to China, the RBA
presents significant analysis of internal Chinese industrial dynamics (Holloway, 2010). Note
however, that the RBA analysis only segregates Chinese market demand into flat products (for
consumption of steel) and structural products (for construction), and does not go into detail
concerning individual end use markets.
Items in bold font are total steel usage calculations for each category of steel usage, based on
the steel usage estimates in normal font.
Notes:
(A) The estimate for skyscrapers is based on an assumed 30 year period for China to attain
the ratio of skyscrapers to people as realized in the United States. Each skyscraper is
assumed to utilize as much steel as on average as the average of three of the largest
skyscrapers in existence today (Willis Tower, tallest building in the US, World Trade
Center (NY) and the Empire State Building).
(B) The amount of steel utilized in bridge construction is believed to be conservative
because the total amount of steel even in building an average of 5 bridges the average
size of the longest bridge in the world (Akashi Kaikyō Bridge in Japan) and the 9th
largest bridge in the world (Golden Gate) is only 132,000 tons of steel per bridge,
totaling less than 1 million tons per year of steel usage.
(C) Steel is used in expressways to reinforce concrete. China is assumed to use 25% more
steel per KM than the US in its interstate system. Estimates are based on the Chinese
Ministry of Transportation Estimates.
(D) For categorieslabeled ´´D´´ in the Chart above, these categories were difficult to find
reliable estimates of production for China. The steel usage for these categories (white
goods, Machinery and Factory construction, military, container and other) are arrived
at through the taking of known US 2009 steel production in these categories and
conservatively multiplying this number by 7 (7 is chosen because it is a relatively high
number). Note that the military steel usage is assumed to be the same as US steel
usage ʹ as the US has the most military expenditures in the world.
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The analysis in Figure 2 shows several items. First, certain end markets consume much more
steel than others in China. For example, the construction and completion of an equivalent of 5
Golden Gate bridges (the Golden Gate Bridge is the 9th longest bridge in the world) per year
will consume significantly less than 1 million tons of steel per year, (Goldengatebridge.org,
2011) and the construction of an incredible 100 1,000 MW coal power plants will only
consume an estimated 1.7M tons of steel per year. (R&D, 2010) Note that China´s 2009 steel
consumption was approximately 568M tons of steel, so Chinese power plant construction and
bridge construction can only (under any reasonable scenario) consume only a fraction of the
total steel consumption in China. The calculated steel usage per application is presented in
Figure 3.
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Implications:The takeaway from the analysis in this section is that steel consumption in China
appears to be driven by large scale office and residential construction ʹ areas of construction
which are likely driven by Chinese governmental stimulus spending, and areas which probably
mean that supply can with reasonable probability exceed demand in the near future (if not
currently, particularly in office). Therefore, as China is the major export market for iron ore
based on office and residential construction demand, Vale is recommended to exercise caution
in this intermediate period ʹ when Chinese consumption is paramount in importance and
before India can take up the slack as a major consumer of steel. These actions of the part of
Vale would be hedging future iron ore prices at near record levels currently, where possible,
and locking in long term financing at lower rates, perhaps considering utilizing Vale´s currently
record high stock price to solidify its industry position over the long term by doing acquisitions
of other iron ore and base metal mining companies through all stock deals.
The balance of the analysis of Chinese steel consumption is that China likely is close to an
oversupply of office and residential space over the near term, but is committed and has the
financial capability to continue to spend on infrastructure going forward, for a substantial time
frame ʹ 15 years at least at the current rate of stimulus spending. The risk for Vale for
significantly lower steel production in China over the next decade is therefore assessed, based
on the balance of these factors, as moderate to moderately low. This should allow China to be
a significant market for iron ore exporters on the balance of probabilities until India can
become a future large scale importer of iron ore, perhaps with some stress and ´nail-biting´ at
for top management at the major steel producers, such as Baosteel, and the major iron ore
mining firms, such as Vale, in the intervening period, however.
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Goldengatebridge.org. (2011). s s =
. Acesso em 29 de 3
de 2011, disponível em Golden Gate Bridge Highway and Transport District:
http://www.goldengatebridge.org/research/factsGGBDesign.php
Koo, R. (2010).
. Acesso em 29 de 3 de 2011, disponível em
Institute for New Economic Thinking: http://ineteconomics.org/video/clip/china-
played-global-collapse-perfectly-richard-koo
MIT. (10 de ]ctober de 2010).
. Acesso em 29 de 3 de 2011, disponível em Sustainable Urban Housing in
China: http://chinahousing.mit.edu/english/china/housing/
R&D. (25 de 7 de 2010). ! "#$$$! %
. Acesso em 29 de 3 de 2011, disponível em R&D:
http://www.rdmag.com/News/Feeds/2010/07/materials-thyssenkrupp-to-supply-
17000-tons-of-steel-for-sou/
Steel]rbis. (28 de 1 de 2008).
.
Acesso em 29 de 3 de 2011, disponível em Steel]rbis:
http://www.steelorbis.com/steel-news/latest-news/steel-consumption-for-
high_speed-railways-to-increase-in-china-430371.htm