A danger sign is displayed on the grounds of the former U.S. Steel McDonald Works steel mill near Youngstown in Campbell, Ohio, U.S. (Photographer: Luke Sharrett/Bloomberg)

China Won't Repeat Steel Crash in 2017, Japanese Mill Says

(Bloomberg) -- Global steel mills shouldn’t fret about the chances of Chinese exports torpedoing prices this year in a rerun of 2015, according to the managing director of Japan’s biggest producer of recycled steel.

Strong domestic demand in China and cuts in production capacity are leading to a more balanced market, said Kiyoshi Imamura from Tokyo Steel Manufacturing Co. The nation is building roads, railways and warehouses to bolster expansion, and shutting illegal and inefficient mills that cause pollution, he said in an interview. New service industries like online shopping can help absorb workers that lose their jobs, he added.

China Won't Repeat Steel Crash in 2017, Japanese Mill Says

“China won’t trigger an imbalance of supply and demand, at least this year,” Imamura said in Tokyo on March 14. “I strongly feel that prices won’t go back to the previous levels because of China overproducing steel,” he said. The nation accounts for about half of global supply.

The country has started the year on a firm footing, with macro data showing fixed-asset investment rising 8.9 percent in January and February from a year ago, and industrial output increasing 6.3 percent. The benchmark price of domestic hot-rolled coil in China has jumped 60 percent in the past year, and Imamura sees the metal staying at current levels of $500 to $600 a metric ton.

Back in 2015, coil prices slumped 33 percent as Chinese exports of steel surged to a record 112 million tons. The deluge hurt global steel mills and prompted countries from India to the U.S. to introduce import tariffs. It even reached the level of a meeting of G-20 countries, which agreed to set up a group to address overcapacity.

Economic Boom

Imamura visited four areas in China in December -- Jinan, Chongqing, Shanghai and Wuxi -- to study the market. In meetings with the industry and users, he says he was inspired by the development of the economy and manufacturing. While the media often highlights the woes of steel ghost towns, he said the metal was in shortage in most regions. “It’s something similar to situations in Japan’s economic boom of 1960s and 1970s,” Imamura said.

Like most mills, Tokyo Steel has benefited from the price rally. The shares are up 38 percent in the past year, outperforming a 20 percent gain in Japan’s top producer, Nippon Steel & Sumitomo Metal Corp.

Tokyo Steel last raised prices in February, which was for a third month in succession. On Tuesday, it said it will maintain its prices for April, even as low inventories at home and abroad had created a favorable supply-demand balance. Its shares dropped as much as 4.9 percent.

At a briefing in Tokyo, Imamura said the pause in prices is because the market hadn’t caught up with previous hikes, but that a tighter Chinese market is having a big impact globally.

Tokyo Steel operates electric-arc furnaces that take scrap as feed-stock, while the largest steelmakers, including Nippon Steel, use iron ore and coking coal. High-end steel is typically made from iron ore and supplied for cars and electronic devices. Steel from scrap is used mostly in construction and the process emits far less carbon dioxide, according to the company.