Australia-based iron ore major BHP Billiton surprised many recently with its bullish outlook for Chinese steel production growth over the coming years. While BHPB continues to put peak Chinese steel output at 1-1.1 billion tonnes/year, analysts Macquarie continue to expect peak output at around 950 million t/y. Meanwhile, Li Xinchuang, president of the China Metallurgical Industry Planning and Research Institute (MPI) tells Kallanish that Chinese output is already within its ‘peak range’.

BHPB’s estimate means that Chinese steel production could grow 20-32% from this year’s level, estimated at 833mt, to peak shortly after 2020. This contrasts sharply with the estimates of MPI’s Li, who notes the industry is entering a phase of much slower growth and would likely remain within the 800-900mt range for the next decade.

Macquarie’s estimate sits between the opinions of China’s domestic steel industry and the overseas mining majors, Kallanish notes.

The three analyses broadly agree in that construction can no longer drive growth the way it has over the last decade, but estimates as to the effect of this key industrial sector vary sharply. MPI believes Chinese construction steel demand is essentially already at its peak, barring significant government stimulus which would only have a short-term impact. Macquarie too expects construction demand to see just 1% compound annual growth rate over 2015-2020. BHPB however believes there is still more growth to come from this area.

Machinery remains the bright spot. An ageing population and competition from neighbours with lower labour costs will force China to seek productivity gains through mechanisation, Macquarie notes. Agricultural machinery too should gain as China will have to produce more food with fewer farmers.

Finally, export levels remain a significant swing factor. The China Iron and Steel Association (CISA) said this week that exports would likely fall in 2015. This is, however, from a peak this year which could reach as high as 80mt. The sustainable level of exports over the coming decade will depend on a variety of factors including the strength of China’s domestic market, trade barriers abroad and the success of other regions in developing their own steelmaking capacity, Kallanish notes.