The current global inflation is high, and it is difficult to end in a short time, which will be the biggest external environment facing China’s steel market in the future. While severe inflation will dent global steel demand, it will also create significant opportunities for the Chinese steel market.First, high global inflation will be the biggest external economic environment facing China’s steel market in the future
The global inflation situation is grim. According to data released by the World Bank and other institutions and organizations, the global inflation rate is expected to be around 8% in 2022, nearly 4 percentage points higher than last year’s level. In 2022, inflation in developed countries was close to 7%, the highest since 1982. Inflation in emerging market economies could hit 10 per cent, the highest since 2008. For the time being, global inflation has shown no signs of abating and could even get worse due to a number of factors. Recently, Powell, chairman of the Federal Reserve, and Lagarde, president of the European Central Bank, admitted that the new era of inflation is coming, and may not return to the past low inflation environment. It can be seen that high global inflation will be the biggest external economic environment facing China’s steel market in the future.
Second, the global serious inflation, will weaken the total steel demand
The increasingly fierce global inflation is bound to have a major impact on world economic growth, causing an increasing risk of global economic recession. The World Bank and other institutions and organizations forecast that the global economic growth rate in 2022 will be only 2.9 percent, 2.8 percentage points lower than last year’s 5.7 percent. The growth rate of developed countries fell by 1.2 percentage points and that of emerging market economies by 3.5 percentage points. Not only that, global growth is expected to fall in the coming years, with the US economy falling to 2.5% in 2022 (from 5.7% in 2021), 1.2% in 2023, and possibly below 1% in 2024.
Global economic growth has fallen sharply, and there may even be a full-blown recession, which of course weakens overall steel demand. Not only that, prices continue to rise, but also make the national income shrink, curb their consumer demand. In this case, China’s steel exports, especially indirect exports of steel accounted for the majority of exports will be affected.
At the same time, the deterioration of the external demand environment, will also stimulate the Chinese decision-making level of countertrend adjustment efforts, further expand domestic demand, to ensure the growth of total demand in a reasonable space, so that China’s steel demand will be more dependent on domestic demand, the total demand of steel will be more obvious.
Third, the global serious inflation situation, will also produce Chinese steel market opportunities
It must also be pointed out that the global serious inflation situation, for China’s total steel demand, is not all negative factors, there are also market opportunities. On a preliminary analysis, there are at least two opportunities.
First, the US is likely to cut import tariffs on Chinese goods. The epicenter of global inflation today is the United States. Us consumer price inflation unexpectedly accelerated to a 40-year high of 8.6 per cent in May. Economists warn that US inflation will rise further, probably to 9 per cent. An important factor behind the continued high price level in the US lies in the period of anti-globalization of the US government, which imposed a large number of tariffs on Chinese goods, raising the import cost. To that end, the Biden administration is currently working on amending section 301 tariffs on Chinese goods, as well as procedures for exempting those tariffs on certain products, in an effort to remove some of the upward pressure on prices. This is an unavoidable obstacle for the US to control inflation. If some export tariffs to the US are reduced, it will naturally benefit China’s steel exports, mainly indirect steel exports.
Second, the substitution effect of Chinese goods has been strengthened. In the world today, cheap and high-quality goods are mainly from China, on the one hand, because the epidemic situation in China has significantly improved, and China’s supply chain is more reliable. On the other hand, supply chains in most parts of the world have been greatly impacted by the outbreak and the war between Russia and Ukraine. The shortage of supply is also a major factor affecting the price rise, which further strengthens the substitution effect of Chinese goods in the international market, which is more favorable for the operation of Chinese world factories. That is why China’s exports of goods, including indirect exports of steel, have remained resilient despite the worsening external environment this year. For example, in May this year, the total value of China’s import and export increased by 9.6% year-on-year and 9.2% month-on-month respectively. In particular, the import and export of the Yangtze River Delta region increased by nearly 20% month-on-month compared with April, and the import and export of Shanghai and other regions recovered significantly. In the export of goods, the export value of mechanical and electrical products increased by 7% year-on-year in the first five months of this year, accounting for 57.2% of the total export value. Exports of automobiles totaled 119.05 billion yuan, up 57.6%. In addition, according to statistics, in the first five months of the national excavator sales fell 39.1% year on year, but the export volume increased 75.7% year on year. All of these show that China’s indirect steel exports continue to be strong, much better than expected, as the world’s demand for China’s procurement rises under the pressure of rising global prices. It is expected that as the global price level remains high or even rises further, the dependence of all countries in the world, especially European and American countries, on Chinese goods including mechanical and electrical products will intensify. This will also make China’s steel exports, especially its indirect exports, very resilient, even more robust pattern.
Post time: Jul-14-2022