What’s Influence on Steel Market from Xiongan New Area in China? SMM Reports

SHANGHAI, Apr. 6 (SMM) – China announced Apr. 1 that it is going to establish Xiongan New Area in Hebei province, a special economic area having the same status as the Shenzhen Special Economic Zone and the Shanghai Pudong New Area, eclipsing the Binhai New Area in Tianjin.

The Xiongan New Area, to be developed in 3 phases, will cover about 100 square kilometers initially and will be expanded to 200 square kilometers in the medium term and eventually about 2,000 square square kilometers in the long term.

"It will take about 10 years to finish the initial stage of development (100 square kilometers), and completion of the whole development will need 20 years, and by then, a city with a population of about 2 million will be built," said Chen Yao, the researcher at the Institute of Industrial Economics of Chinese Academy of Social Sciences, Vice President and Secretary-General of China Regional Economy Society.

Despite of this, the news that China will build a new special economic area pushed up stocks and futures market in China.

"Market speculations over the Xiongan New Area explain the short-term rise, but in the medium and long run, steel demand and price influence from the newly announced area will be small," SMM analyst predicts.

Investment in real estate development and infrastructure, and demand for construction materials will grow in the short term with construction of the Xiongan New Area. Meanwhile, demand for water and gas pipelines during the underground pipeline layout. But, it is clearly mentioned in the planning to keep patient during the construction process, respect the law of urban construction, and reasonably control the speed of development. It is also mentioned to strengthen the unified planning and control between the Xiongan New Area and surrounding area, to avoid excessive expansion of urban scale, and to promote the integration development with the surrounding area. All these indicate that a big leap forward is not expected in construction of the Xiongan New Area, and the construction is also not expected to be carried out very quickly. Hence, steel consumption will grow in the short run, but not greatly, SMM foresees.    

In accordance with the planning, no steel plants will be built in the Xiongan New Area, and the Area, which is far away from home to many steel plants, including Tangshan, Wuan and Shijiazhuang, will play little impact on the three region. Under the background of capacity reduction in the supply-side reform in China, the Beijing-Tianjin-Hebei region is under spotlight, and it will be an inevitable trend to see big efforts in environmental protection and excessive capacity cuts with the beginning of construction of the Xiongan New Area.

Hence, more attention should be paid to the implementation of stricter environmental protection measures and the impact on inefficient capacity cuts from environmental pressures in the the Beijing-Tianjin-Hebei region in the future, SMM points out.

At present, Langfang and Baoding are near to the Xiongan New Area, and steel plants in the two regions, including Qianjin Steel Group, Xinli I&S, Langfang Xingang Steel, Shengbao I&S (all in Langfang), and Baoding Delong I&S (Baoding), are under the planning of capacity replacement or moving.

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