Chinese domestic steel demand to reduce global surplus
China is set to produce 825 million metric tons of crude steel in 2017, a 0.5% increase on last year, but 87% of it is destined for the domestic market, according to a report by BMI Research. The paper cited government-backed infrastructure projects involving "airports, water, rail, power, and roads and bridges" as the driving force behind the steel demand, allaying "Western fears of steel dumping". China's home-grown requirements are set to reduce the global surplus from 10.9 million tonnes in 2016 to 3.2 million tonnes in 2017.

Despite efforts to curb steel output to address issues of overcapacity, China will still be producing more of the alloy next year—but the country will also be snapping it up.

According to a recent report by BMI Research, China will produce 825 million metric tons of crude steel next year, a 0.5 percentage point increase from 2016—yet will consume 87 percent of this production.

"Despite Western fears of steel dumping, increased production of Chinese steel will serve domestic demand more rather than flood international markets in 2017," the house wrote.

In the last few years, China has moved to shift the economy from heavy reliance on industrial exports to more home-grown consumer demand, with the steel sector frequently cited as ripe for consolidation because of surplus production capacity. At the same time, the pace of growth in China real estate and construction segment relies on keeping the economic engine chugging along.

But as BMI noted, the trend has been for higher production for growing domestic use. This year output increased at a monthly average of 3.6 percent on-year from August to October, amid monthly average export declines of 17.5 percent from a year ago. Chinese steel inventories as a proportion of production were also at a historic low of 8.2 percent in November.