Chinese Steel Production Continues To Rise Amid Faltering Demand Conditions
Chinese steel production continues to rise, fueled by domestic demand, as evidenced by the world steel production figures for April reported by the World Steel Association last week. Chinese steel production in the first four months of the year rose 4.6% year-over-year, despite a 27% year-over-year reduction in exports over the same period. [1] [2] However, there are concerns over whether domestic demand can continue to sustain these elevated production levels.
China’s major trading partners, the U.S. and Europe, have clamped down heavily on unfairly traded steel imports over the past year or so, including those from China. Regulatory authorities in both jurisdictions have imposed stiff antidumping duties on steel imports from specific countries, including China, to deter the practice of pricing these imports at unfairly low levels. [3] [4] Rising protectionism against unfairly traded Chinese steels has created an unfavorable environment for the growth of steel exports from China, which is reflected in the sharp decline in exports seen in the first four months of this year. This has boosted the prospects of the domestic steel industries in these geographies going forward, as illustrated by our shipment forecasts for ArcelorMittal’s NAFTA and Europe divisions.
With limited opportunities in their export markets, Chinese steelmakers have had to rely on higher domestic demand to absorb elevated steel production. In order to revive economic growth, the Chinese government instituted a fiscal stimulus targeting the infrastructure sector last year, which has translated into higher domestic demand for steel. [5] However, even with the stimulus, steel demand might not have risen as anticipated, with record high stockpiles of iron ore at Chinese ports indicating that the growth in demand is perhaps lagging behind the growth in supply. [6] Moreover, question marks remain about the sustainability of China’s debt-fueled economic growth paradigm, with Moody’s recently downgrading the country’s sovereign debt. [7] With demand not rising as fast as expected, elevated levels of Chinese steel production could translate into an oversupply situation in China. This could result in a decline in the prices of both steel and iron ore going forward, as question marks over the strength of Chinese demand continue to mount.
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Notes:- April 2017 crude steel production, World Steel Association [↩]
- China’s Apr steel exports at 6.49 mil mt, falls 14% from Mar, 29% on year, Hellenic Shipping News [↩]
- US hits China and others with more steep steel duties, CNBC [↩]
- EU Ramps Up Anti-Dumping Duties on Chinese Steel, Wall Street Journal [↩]
- Fitch: China’s stimulus measures paper over growth slowdown, CNBC [↩]
- Ports in China have enough iron ore to build 13,000 Eiffel Towers, Reuters [↩]
- China Hit by First Moody’s Downgrade Since 1989 on Debt Risk, Bloomberg [↩]