Recently, the National Development and Reform Commission and the Ministry of Transport jointly issued the "Three-Year Action Plan for Major Transportation Infrastructure Construction" (Action Plan). The Action Plan proposes that from 2016 to 2018, 303 railway, highway, waterway, airport, and urban rail transit projects will be prioritized, with a total investment of approximately 4.7 trillion yuan. "According to institutional estimates, the 4.7 trillion yuan infrastructure investment involved in this Action Plan will drive total national steel demand of over 200 million tons, with an average annual steel demand of about 80 million tons. For the steel industry, this can lead to a certain degree of improvement in demand," an industry insider said in an interview with the Modern Logistics News reporter.

　　Favorable Policies Promote Industry Development

　　2016 is the first year of the "13th Five-Year Plan," and many plans will be introduced successively. Stable growth remains the main theme of macroeconomic development in 2016, and infrastructure investment will play an important role in stabilizing growth.

　　However, for the steel industry, the current problem is overcapacity and oversupply. In this regard, industry insiders said that from the perspective of resolution, both addition and subtraction methods can be used to resolve overcapacity. One is to reduce capacity through environmental protection, technology, quality, products, and international capacity cooperation, and to optimize and upgrade the production side through supply-side reform.

　　On the other hand, investment in potential demand areas such as environmental protection construction, urban rail and other transportation construction, underground utility tunnel construction, medical, elderly care, childcare and other livelihood facilities, research and development of core technology products and high-tech products, as well as national defense construction.

　　Industry insiders believe that against the backdrop of sharp fluctuations in the steel market and stable economic growth, the introduction of the Action Plan has played a positive role in stabilizing market confidence, stimulating demand, and driving economic development.

　　Industry insiders also said that since these investments mainly address economic weaknesses, they are largely conducive to promoting economic structural balance and can also achieve a leap in China's comprehensive national strength. By working on both supply and demand sides, we can more scientifically and effectively improve the market relationship of oversupply, rather than adopting a one-size-fits-all approach. "With the continuous implementation of capacity reduction, supply and demand will gradually balance, prices will stabilize, the market will gradually be purified, maintaining stable development of the steel industry and providing conditions for enterprise transformation," the insider said.

　　Infrastructure Investment Drives Steel Demand

　　"At a time when the country is vigorously promoting capacity reduction in the steel and coal industries, the introduction of such intensive infrastructure project investment action plans is certainly good news for the steel industry, and the impact is huge," the insider said.

　　Currently, the central government is determined to vigorously resolve steel overcapacity and has issued a series of policy documents including the "Opinions of the State Council on Resolving Overcapacity in the Steel Industry and Achieving Development." Just in early April, officials from the Ministry of Industry and Information Technology said that by 2020, China will cut 200 million tons of steel capacity, with national steel capacity expected to be 1.13 billion tons by 2020, including some capacity from zombie enterprises. According to reports, at a recent steel seminar held in Brussels, Belgium, several countries pointed fingers at China for global steel overcapacity, condemning China's excessive steel production and dumping of steel abroad.

　　Given the reality of domestic and external challenges in steel demand, industry insiders said that the demand brought by infrastructure project investment in this action plan is still significant.

　　Based on the data from the MIIT official, industry insiders explained with specific figures to the reporter: if crude steel exports remain at 100 million tons and national crude steel output remains at 800 million tons, according to capacity reduction estimates and the zombie capacity that should be eliminated first, assuming 100 million tons are eliminated during the three years from 2016 to 2018, then steel capacity in 2018 would be 1.23 billion tons.

　　For current steel consumption demand, based on data estimates, railway, highway, waterway, airport, and urban rail transit projects together account for about 34%, so the national steel infrastructure consumption demand is estimated to be between 214 million and 238 million tons (taking the middle value of 230 million tons for calculation convenience).

　　Subsequently, the industry insider calculated for the reporter, explaining: "Now the action plan proposes a total investment of 4.7 trillion yuan over three years. Based on every trillion yuan driving 6.24 million tons of steel demand, 4.7 trillion yuan can drive 28.2 million tons of steel consumption. Then the average annual new demand is 9.4 million tons, which is about 24.5% more compared to the predicted national infrastructure consumption demand of 230 million tons."

　　Rebar and Rails May Benefit

　　According to the action plan, among the major projects and key projects to be promoted in 2016, the Taiyuan-Jiaozuo railway project will build 362 kilometers of new railway with an investment of about 41.9 billion yuan. Shandong Province also has two projects listed in the 2016 key transportation infrastructure projects: the Qufu-Linyi section of the Lunan Railway, with 134 kilometers of new railway and an investment of 19.3 billion yuan, and the first phase of the Jinan R3 line, with 19 kilometers of new line and an investment of 13.5 billion yuan. "The construction of railway, highway and other infrastructure projects first requires rebar in building materials, followed by rails, train wheels, etc."

　　According to industry analysis, in addition to rebar and rails, the main steel products consumed in railway, highway and other construction projects include steel bars, wire rods, sections, bridge plates, etc. "Currently, most enterprises that can produce rebar are private enterprises. For state-owned enterprises, Hebei Steel has a relatively large share. In terms of rails, the larger producers are Ansteel and Pangang (now part of Ansteel). Pangang heavy rails currently account for 40% of domestic output, Ansteel 20%, and for train wheels, Magang has a larger share," the insider continued. He also said that the quality of China's construction steel has greatly improved compared to before, especially since the country banned grade II rebar; now only grade III rebar is in circulation, and there are no quality or strength issues.

　　Among rail production enterprises, in addition to Ansteel and Pangang, "Baosteel, Baotou Steel, and Wuhan Steel are also large rail producers," the insider added.

　　Besides steel companies, infrastructure investment mainly benefits project engineering companies, and steel varieties directly affected include stainless steel, pipes, sections, and construction steel, as well as deep-processed plates such as color-coated construction sheets. At the same time, steel structure construction is being promoted, so some special steel varieties will also be boosted.

　　The industry insider optimistically told the reporter that if all projects in the plan are implemented smoothly, based on the current market steel price of 2,500 yuan/ton, the steel price may eventually return to 3,000 yuan/ton, which would be actual support rather than the previous inflated price increases. This is also a new opportunity for the current steel industry. "Although 4.7 trillion yuan investment seems like a lot, we should not be overly optimistic. When these projects can start and whether they can start smoothly still requires coordination among many departments. Moreover, the plan has just been released, and this year as the starting year, demand will not change much," the insider cautioned.