China's steel demand may get longer-term support given the economy's limited installed steel rate per capita relative to those reached in the US and Japan, investment bank Macquarie said Monday.
China may take 30 years to reach the steel capital stock levels currently in the US and around 25 years to catch Japan, Macquarie analysts said, referring to a measure of the cumulative level of steel in each country.
"While China's steel consumption has peaked in our view, with a consumption level currently running at around 1.5 times that of the US on a per capita basis, it is still catching up at a relatively rapid pace," the report said.
The analysis nets out impact of ferrous scrap generation and use, which is in its infancy in China.
Tracking China's development related to steel capital growth will be key to global metals and mining markets for years to come, Macquarie said.
Macquarie has already called the top for pig iron output in China, but with overall capital stock still on the rise, this is a trend the bank expects will continue in coming years and should be closely watched.
Miner BHP Billiton and Rio Tinto foresaw a longer period of growth to China's eventual peak in steel output, with the changing rates in demand and prices impacting on prospects for seaborne raw materials needs.
"While Chinese steel has now passed peak rates of consumption, the rate of consumption of course still remains elevated relative to history," Macquarie said.
"This, when coupled with the fact that scrap generation in China is still in its infancy (owing to the youthfulness of the steel economy) means capital stock is still on the rise, a trend which will continue in the coming years." Japan may have hit the saturation point for steel capital stock around 2000, while the US reached this in the mid-1970s, it said.
"While consumption per capita has been trending lower from this point, the capital stock has stayed relatively constant."
The bank offered up a caveat, that China's progression through the steel capital stock cycle may plateau earlier as steel use becomes more efficient over time.
Using 80% of the previous peaks as a "developed" level, would mean China reaching its natural steel capital stock ceiling in the mid-2020s, it said.
"This is perhaps best demonstrated by the fact that Chinese consumption per capita has peaked out lower than the precedents in Japan, Germany or even the US," the bank added.
