What China’s steel survey tells us about its economy (and the prospects for Australian industries)

Eyes were on the results of China’s steel survey this month as the country continues to reopen, and there’s an indication of a positive year for production and commodities. Demand appeared to be stabilising and steel mills indicated plans to purchase more raw materials in anticipation of higher production.

Steel is a significant indicator

The Chinese steel industry could be considered an economic gauge.

China is not only the major producer of steel, but also a major consumer in terms of infrastructure and other construction activities. Any suggestion of increased production is a promising sign for economic activity ramping up within China.

The World Steel Association predicted global steel consumption in 2023 to be 1.814bn tonnes, with half of that to be consumed by China.

Australia benefits from this as a primary exporter of the raw materials required for steel production – iron ore and coking coal. Australia was responsible for 729.32 million tonnes of iron ore exports to China in 2022. It’s worth noting that this was despite tariffs and bans on a range of other Australian exports and despite China’s zero-covid stance which restricted activity within China.

Some companies to watch would be Rio Tinto (ASX: RIO), BHP Group (ASX: BHP) and Whitehaven Coal (ASX: WHC).

Australian commodity exports have been a saviour in tough economic conditions in the past – should Chinese demand live up to potential, it could provide significant support again in 2023.

The key results to be aware of

Macquarie Equities pointed to a few key highlights from the survey.

1. Continued positive sentiment from steel mills, steel traders and iron ore traders for the next three months.

2. A significant increase in demand for long steel in recent months over flat steel. Long steel is typically preferred in construction activities for providing structural support to buildings.

3. Steel mills signalled intent to buy more raw materials in coming months and an expectation for higher steel production.

Chinese steel mills showing increased interest in raw materials for steel production. Source: Macquarie Equities

Macquarie Equities believes that steel demand appears to be stabilising and market fundamentals for steel look to be improving. It also notes the ongoing recovery of construction and strength in the infrastructure sector are likely to support steel production going forward, while weaker margins are a risk.