BEIJING (Reuters) - China’s steel companies are banking on rising demand in 2020 for high-end, and higher priced, specialty metal products for use in new infrastructure projects to revive an economy that was already slowing before the recent coronavirus outbreak.
As much as 2.8 trillion yuan ($396.75 billion) of local government bonds have been pledged for metal-intensive projects designed to stimulate economic growth, including new light rail systems, energy grid upgrades and an accelerated roll-out of 5G network installations.
Li Xinchuang, chairman of the China Metallurgical Industry Planning and Research Institute (CMIPRI), a government think-tank, expects new infrastructure projects to increase direct demand of specialty steel products by around 33 million tonnes this year, or roughly the annual output of Brazil, the ninth-largest steel producer. Li did not give a 2019 figure.
However, the China Special Steel Enterprises Association, which uses a stricter definition of specialty steel, said output in 2019 was roughly 12% of the China’s crude steel production of 980 million tonnes or about 118 million tonnes. China is the world’s biggest steel maker, with 1.2 billion tonnes of steel product output in 2019.
“The new infrastructure projects require more high performance and value-added steel,” Li said last week. “They not only call for the structure, but also function of steel products.”
Specialty steel includes products with other metals content and a different proportion of carbon that require additional smelting and processing and have higher physical performance than normal steel products such as rebar used in construction.
The products include items such as L-shaped, or angle, steel as well as electrical steel, an alloy that includes small amounts of silicon and is used to reduce power losses in electrical equipment such as transformers.
L-section steel averages about 4,000 yuan per tonne compared to about 3,350 yuan for rebar.
State Grid Corp of China, the country’s power grid operator, aims to spend 181.1 billion yuan in 2020 on projects that include extending its ultra-high voltage (UHV) network that requires specific steel grades, while China Mobile plans to build around 200,000 steel-intensive 5G base stations this year.
A spokesman for China’s second-biggest steel producer HBIS Group said it expects to sell around 30,000-40,000 tonnes of L-section special steel per month as the UHV projects ramp up later in 2020.
UHV projects will also prop up demand for high-grade electrical steel, according to Kevin Bai, an analyst with CRU metals consultancy in Beijing.
High-grade electrical steel, which requires specialized technology to manufacture, is mainly produced by bigger mills like Baoshan Iron & Steel Co Ltd and Beijing Shougang Co Ltd.
While specialty products are forecast to increase because of the infrastructure push, the consumption of traditional product like rebar and hot-rolled steel will also help prop up the sector.
“Some ‘new infrastructure’ are existing steel applications, not completely new,” said He Ming, an analyst from Wood Mackenzie, citing intercity rails and urban transport.
China aims to nearly double its urban railway track this year and also increase its high-speed rail network, its state council said. The National Development and Reform Commission, the top economic planner, has approved 17 railway projects since the second half of 2019.
Still, the broader slowdown in China will reduce overall steel demand.
The CMIPRI’s Li forecasts Chinese consumption will drop by at least 5% this year.
China made 167.1 million tonnes of steel products in the first two months of 2020, down 3.4% from a year earlier.
Reporting by Min Zhang and Shivani Singh; Editing by Gavin Maguire and Christian Schmollinger
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