China’s steel industry eyes major HRC capacity expansion in 2022-2023

China's hot-rolled coil capacity expansion is set to gain pace in 2022-2023 as the country marks a slow but gradual transition from property-driven to manufacturing-driven economic growth, a development that is expected to diminish demand for long steel from the property and infrastructure sectors in the long term.

As China moves to high-end manufacturing and long steel demand plateaus, it will help grow flat steel demand, industry sources told S&P Global Platts.

China has about 14 new hot strip mills that are scheduled to be commissioned in 2022, with a combined HRC production capacity of around 41.4 million mt/year, according to Platts calculations based on official reports and market sources.

In 2023, another 10 hot strip mills will come onstream with a combined production capacity of 26.6 million mt/year.

Currently, China has about 350 million mt/year of HRC production capacity, according to some market sources. That means if the new mills are commissioned on a timely basis, China's HRC production capacity will increase by around 11.8% in 2022 and 6.8% in 2023.

The new hot strip mills width ranges from 1,450 mm to 2,250 mm. Most of them will aim to produce high-end flat steel products used in industries such as vehicle and engineering machinery manufacturing, high strength containers, oil and gas transmission pipelines, steel structure housing and prefabricated construction.

Expansion motive

Some steelmakers building the hot strip mills are long steel producers aiming to extend their market from long steel to flat steel. Some other already produce flat steel and are looking to expand their product range to be more competitive.

Flat steel products are usually more value-added than long steel products, market sources said.

The demand for long steel in China's property and infrastructure sectors may have plateaued, while high-end manufacturing, which mainly consumes flat steel, may gradually become the major driver of China's economic growth, the sources said.

China has also been pushing for steel structure housing and prefabricated construction, which will lower the overall steel and cement consumption and thus help reduce China's carbon emissions.

"In the near future, we may see that even in the construction sector, the consumption of HRC will gradually increase while that of rebar and wire rod will decline," one mill source said.

However, HRC production capacity might be expanding too fast, making fierce competition or oversupply inevitable in the near future despite the potential demand growth for flat steel, some sources said.

One source said his company was aware of the fast-growing HRC capacity and eventually gave up on plans to build their own hot strip mill.

Production still under control

Most of the steelmakers planning the new mills have been also building new iron and crude steel-making facilities, with capacity quotas purchased from other mills through China's capacity swap mechanism.

China started capping its crude steel output since 2021 in order to meet its decarbonization goals.

"Government's direct interventions in steel production may ease in 2022, but China's crude steel production this year is still likely to decline further from 2021, mainly due to poor steel demand in property and its related sectors," one mill source said.

"China will continue to cap its steel production in the future, but more through raising environmental protection costs and industry consolidation," the source said.

As a result, the trend of rising HRC production and falling long steel production may continue over the upcoming years.

In 2021, China's output of medium-wide HRC, a major HRC, increased 4.3% on the year to 179.33 million mt, after a 12.2% year-on-year growth in 2020, according to the National Bureau of Statistics.

The combined output of rebar and wire rod, also indicators of long steel output, decreased 5.7% on the year to 407.91 million mt in 2021.