<article><p class="lead">China's crude steel output may exceed 1bn t in 2020, reaching yet another record high on the back of stimulus-fuelled demand even as most other regions struggle with oversupply.</p><p>China, with half of the world's steel production, is blamed by steelmakers in Europe and the US for being a main contributor to excess global steel capacity <a href="https://direct.argusmedia.com/newsandanalysis/article/1873963">of more than 400mn t</a>. Production <a href="https://direct.argusmedia.com/newsandanalysis/article/2038764">fell in January-November 2019</a> in the EU, Turkey, CIS, Brazil, Japan, Taiwan and South Korea, while output in other major producers such as India and US was hit by late-year declines. </p><p>China's January-November crude steel output rose by 7pc to 904.18mn t, the World Steel Association said. That is an annualised pace of 986mn t for 2019, leaving output less than 2pc below the 1bn t level. </p><p>The China steel logistics professionals committee last week projected that output <a href="https://direct.argusmedia.com/newsandanalysis/article/2043112">would exceed 1bn t in 2020</a>. But not everyone sees growth ahead. China's state-run think-tank the Metallurgical Industry Planning and Research Institute said <a href="https://direct.argusmedia.com/newsandanalysis/article/2032942">output would fall</a> by 0.7pc to 981mn t in 2020. </p><p>China has reduced its installed steel capacity in recent years, with little effect on output. Looser environmental restrictions and pollution controls have increased capacity utilisation rates, while profit margins have attracted more production. Chinese mills were making gross profits of 300-400 yuan/t ($43-57/t) for coil and Yn200-400/t for rebar in late December.</p><p>Demand growth is expected to slow in 2020, but still remain positive, aided by a truce in the US-China trade war and <a href="https://direct.argusmedia.com/newsandanalysis/article/2040317">stimulus measures in China</a>.</p><h3>Real estate: 38pc of sales</h3><p class="lead">Real estate construction accounted for 38pc of China's end-use steel demand of 950mn t in 2019, <i>Argus</i> estimates. China will halt its programme to redevelop slums in 2020, as too much has been spent on the initiative in recent years. But this could be offset by a new programme to modernise existing buildings.</p><p>China eased restrictions on home purchases in the second half of 2019. That trend will continue in 2020, with tier 3-4 cities keeping policies loose to support development, steel market participants said. Any drastic slowdown in real estate demand is unlikely given the government's support.</p><h3>Infrastructure: 20pc of sales</h3><p class="lead">China brought forward 1 trillion yuan ($140bn) in 2020 provincial government bonds in November to speed project starts in early 2020. Beijing directed localities to reduce the priority of projects on shantytowns and land banks in September . This is expected to increase the amount of money directed at infrastructure from 28pc of the newly announced special bonds to more than half of bond expenditures in 2020.</p><p>The projects, which will increase demand for long steel products, are aimed at countering downward pressures on the economy, participants said.</p><h3>Auto: 7pc of sales</h3><p class="lead">China's auto sales are forecast to slow declines or post slight growth in 2020.</p><p>The China Automotive Industry Association expects auto sales to fall by 2pc in 2020 after declining by 8pc in 2019.</p><p>Auto sales will increase by 1pc in 2020, the secretary general of the China Passenger Car Association said in November.</p><p>These forecasts for auto sales should steady demand for hot-rolled coil (HRC) from the sector.</p><h3>Machinery: 16pc of sales</h3><p class="lead">The outlook for China's machinery industry remains tough in 2020, but the sector is likely to stay relatively stable. The vice chairman of China's machinery industry association has forecast a 5-5.5pc increase in added value produced by the machinery industry in 2020, compared with a 5pc increase in 2019. </p><h3>Exports: 7pc of sales</h3><p class="lead">China's steel exports hit a <a href="https://direct.argusmedia.com/newsandanalysis/article/2030302">nine-month low in November</a> to take exports in the first 11 months of the year to 59.66mn t. That is an annualised pace of 64mn t, or 7pc of China's end-use demand.</p><p>Domestic demand growth may continue to pull supplies from seaborne markets, as higher domestic selling prices keep Chinese mills less competitive in export sales. Major signs that steel flows are tilted to China rather than away include China's semi-finished steel imports <a href="https://direct.argusmedia.com/newsandanalysis/article/2043108">rising to a 10-year high in November</a>, and traders taking the unusual step of booking <a href="https://direct.argusmedia.com/newsandanalysis/article/1993054">imports of HRC</a>. Intense competition with India, Vietnam and Malaysia for Asia-Pacific sales could limit Chinese exports.</p><p>A minority of participants said rising domestic output may allow for some mean reversion, providing supply for an increase in Chinese steel exports in 2020. </p></article>