In its quarterly report on resources and energy released in March 2021, Australia's Department of Industry, Science, Energy and Resources said that due to the COVID-19 outbreak and the resulting economic downturn, global steel consumption in 2020 was down 0.9 per cent year on year, with an increase in steel consumption in China.But consumption in Europe, the United States, Japan and other countries and regions fell sharply from a year earlier.

As the global economy recovers, global steel consumption is expected to grow 3.6 per cent year on year in 2021, with growth slowing slightly in subsequent years.Global crude steel production is expected to show a similar trend, with year-on-year growth of 3.0 per cent in 2021 and 2.8 per cent in 2022.

1. Global crude steel production will rebound in 2021

Global steel production levels have largely recovered, with global crude steel production in December 2020 6% higher than in December 2019 (pre-COVID-19 levels).However, this trend masks a sharp change in the structure of the market, with record crude steel production in China offsetting declines in Europe, the US and Japan, where production is still at recessionary levels.In addition, steel mills around the world remain closed or on standby.

2. China will maintain its dominant position in the global steel market

Crude steel production in most OECD countries is expected to recover in 2021 and grow rapidly as demand in Southeast Asia increases.However, prospects for recovery in crude steel production in OECD countries remain uncertain.

China will produce more than 1bn tonnes of crude steel in 2020, leading to an increase in iron ore imports, particularly from Australia.Australia accounts for more than half of the world's seaborne iron ore trade and more than 60 per cent of China's iron ore imports.The move comes as China seeks to reduce its dependence on imported iron ore and aims to increase its self-sufficiency in iron ore resources.

The amount of scrap used in China's steel production is expected to increase over the next five years.The Chinese government had previously restricted scrap imports in 2018 and 2019 in an attempt to prevent low-quality scrap from being dumped into China.At present, the implementation of relevant standards makes it possible to import high quality scrap steel.China's billet imports are estimated to have increased by around 700% to more than 18 million tons in 2020.However, this has not significantly affected China's demand for imported iron ore.

With iron ore prices set to remain relatively high, China's scrap imports are likely to grow rapidly in 2021, albeit from a low base.However, Chinese scrap imports remain significantly constrained in the short term, which could prevent large-scale substitution of imported iron ore.These constraints include limited supply, the fact that the largest scrap exporters (the EU, the US and Japan) are not expected to increase scrap exports significantly over the outlook period, and increasing scrap import competition from other countries, including India.Intense competition for imported scrap has led to a rise in scrap prices, with the cost of imported scrap now US $50 per tonne higher than that of domestic Chinese procurement.

However, market conditions have provided favorable conditions for scrap applications, with scrap feedstock EAF's profitability significantly improved in 2020 as high iron ore prices put pressure on long-process production.

At present, only one-fifth of China's steelmaking raw material is scrap.In the future, the share of scrap in China's steelmaking raw material is expected to rise to a quarter by 2026, driven by a strong market, technological improvements and policy support, with growth accelerating towards the end of the outlook period.

China is working on new iron ore deposits, including the proposed Simandou mine in Guinea, but these are unlikely to yield significant results in the short term.As a result, scrap is expected to be a major source of increased domestic steelmaking raw material supply in China.China's imports of Australian iron ore are expected to remain stable over the outlook as Chinese steel demand is likely to remain strong.

Southeast Asian countries are expected to seek to build more steel capacity during the outlook period.Population growth, urbanisation and industrialisation in Southeast Asia will drive strong steel demand in the coming years, making growth in crude steel production in the region the biggest driver of global crude steel production growth, while supply in the region is likely to be supported by investment and capital from large Chinese companies.

In 2017, the Indian government issued the National Steel Policy, which contains proposals to expand and upgrade the domestic steel industry.Domestic steel demand in India is growing rapidly, with Brand Equity Foundation of India forecasting that steel consumption in India will increase from 99 million tonnes in FY2018/19 to 230 million tonnes in FY2030/31.India's steel industry is consolidating and seeking to take advantage of relatively low Labour costs and some important untapped iron ore reserves.The COVID-19 outbreak has slowed the implementation of India's steel policy, but India's crude steel production is still expected to grow rapidly from a low point in 2020, increasing by more than 40% in five years.Much of the increase in crude steel production is expected to be met by an increase in domestic iron ore production over the same period.

Following a significant decline in crude steel production, South Korean crude steel production has recovered to near pre-COVID-19 levels, with further modest increases in new capacity and capacity upgrades expected by the end of the outlook period.

Steel production in Europe is not expected to fully recover, with some steel capacity expected to be permanently shut down.This will accelerate the shift of European steel production to emerging economies throughout South and East Asia.

Overall, global steel production is expected to follow the trajectory of global industrial production, with relatively higher growth in the first two years of the outlook period.Then, as China's crude steel production peaks, global crude steel production growth will slow.