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Here's how much more steel China will need for its new megacity

China will set up a new special economic zone, the Xiongan New Area, in Hebei Province, the government announced on Saturday. The Xiongan New Area, about 100 kilometers southwest of Beijing, will cover three counties, Xiongxian, Rongcheng and Anxin.
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China will set up a new special economic zone, the Xiongan New Area, in Hebei Province, the government announced on Saturday. The Xiongan New Area, about 100 kilometers southwest of Beijing, will cover three counties, Xiongxian, Rongcheng and Anxin.

China's new project to build a megacity on the outskirts of Beijing will drive steel demand, with the country likely gobbling up an extra 12 to 14 million metric tons of the commodity a year if plans are implemented in 10 years, Citi Research analysts said in a note released on Tuesday.

While the amount will just be a minuscule proportion of the nearly 1.63 billion tons in global crude steel production last year according to the World Steel Association, it will nonetheless provide "greater certainty on continuation of Chinese steel demand at high levels," wrote Citi analysts.

The global steel industry has been under duress in recent years, with largest producer and consumer China under scrutiny for alleged dumping of the commodity on international markets due to domestic over-capacity.

The newest special economic zone of Xiongan in Hebei was announced on Saturday in a bid to boost domestic growth in a province that has been hit by massive job layoffs from heavy industries as China moves to maneuver economic growth away from manufacturing toward services.

Xiongan, south of Beijing, will initially cover 100 sq km (38.6 sq miles) and will be expanded in the long run to 2,000 sq km.

"Assuming the authorities wish to replicate Shenzhen in 10 years (double the speed at which Shenzhen was built) at least in terms of physical infrastructure, that would provide 12-14 million tons of extra steel demand per year on a current domestic demand rate of about 700 million tons, i.e. about a 2 percent uplift," wrote the analysts.

According to Citi's calculations, around 120 to 140 million tons of steel are required to replicate Shenzhen.

Citi based its calculations on the southern Chinese city of Shenzhen, a special economic zone grown from rice paddies in 1979 into a manufacturing hub and into its latest incarnation as a startup hub.

With well-connected infrastructure and reasonably high urban density, Xiongan will need 25-30 million tons of steel for residential infrastructure, another 35-40 million tons for the non-residential floor space, 35-40 million tons for the transportation and logistics infrastructure and 25-30 million tons for other utilities and infrastructure, Citi said.

CNBC's Sophia Yan contributed to this report.

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