China’s relentless march to global stainless steel dominance

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China

Zerophoto/Adobe Stock

The headline sounds somewhat melodramatic.

But the numbers laid out in the World Bureau of Metal Statistics’s annual stainless steel report suggest the reality is not far from it.

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Domination of the stainless sector

Asia in general and China in particular now dominate the stainless steel sector with the region producing 80% of stainless slab production in 2019. The largest players in the sector were China at 70% and India at 10%.

The region produced 39.5 million tons of stainless steel in 2018 and jumped to 41.9 million tons in 2019.

China led the ramp up, increasing production by 10%, followed by India and Indonesia (both up 5%). Meanwhile, others in the region — Japan, South Korea and Taiwan — declined. So, too, did Europe, which fell by 8%. The U.S.’s output also fell by 8%.

Steel consolidation drives China’s growth

It is not hard to see what is driving growth in China.

Beijing is actively pushing consolidation of the massive state sector, as a recent Reuters article illustrates.

China Baowu Steel Group, the country’s top steelmaker by output, is itself the product of a consolidation of Baoshan Iron & Steel and Wuhan Iron & Steel in 2016, plus further additions since. Baowu has now absorbed stainless producer Taiyuan Iron & Steel (Group) Co Ltd (TISCO) by taking a 51% controlling stake.

No money has changed hands, Reuters reports. The deal is valued at 14.5 billion yuan ($2.10 billion) because it is a “state-backed re-structuring.”

A controlling stake in TISCO will help Baowu achieve a goal of producing 100 million tonnes of steel per year, Reuters reports. The deal will also allow it to “enhance its overall competitiveness in the stainless steel sector,” the company said.

But analysts are reported as saying the aim is also to provide better control of market prices.

China Baowu Steel will be second only to stainless steel market leader Tsingshan Holding Group in terms of global ranking.

To gauge the size of these state-engineered behemoths, TISCO may be No. 2. However, at 4.5 million tons of capacity, it is greater than half the size of Europe’s 7 million tons stainless steel production and nearly twice as large as the U.S.’s 2.6 million tons.

TISCO alone could meet all of the raw tonnage needs of North and South America — plus the rest of the world outside of Asia and Europe, with capacity to spare.

The economies of scale and market influence such size provides is significant, not just in setting domestic prices but in setting raw material prices for constituents like nickel, chrome, and molybdenum used in stainless alloying.

China is driving consolidation reportedly to achieve better environmental compliance and “to achieve orderly market competition.”

Make of that what you will in a state-controlled, centralist economy.

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