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Fitch Ratings expects overall fixed-asset investment (FAI) in infrastructure to pick up significantly in 2022, in an effort to offset a decline in homebuilding markets. Demand for steel is driven mostly by construction and manufacturing.
At the same time, we expect FAI in manufacturing to grow at a mid-single-digit pace due to demand recovery from auto, which has been suffering from a sector-wide decline due to chip shortages. As such, we estimate apparent steel consumption (measured by total production minus net exports) to drop slightly to just below 1 billion tonnes (bt) compared with our forecast of 1bt in 2021, with total production remaining above 1bt.
We believe supply will be tightened with the expectation of an approximately 30 million ton (mt) production cut in 1Q22 from the winter heating season (WHS) production control. In addition, air-control measures for the Beijing Winter Olympics Games could potentially cause a further decrease. We also expect accelerated consolidation as strict environmental regulations and dual-carbon targets will mean rising costs for smaller-sized producers visited by frequent disruption to production. Lower demand in the property sector will also see a shift in product mix as well as downstream value-chain extensions for producers in order to remain relevant in the long term.
Downstream extension is important for steel producers to remain competitive and relevant, as downstream industries’ demand for steel products is evolving into higher-value-added products. We expect more capex spending relating to new-product development to capture fresh demand from sectors such as auto, home appliances, and higher infrastructure requirements.
Source: Fitch Ratings