Steel Exports Jump From China Expanding Glut, Hurting Mills

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China’s steel exports climbed to the highest level since January, adding to a surplus that’s hurting global producers and prompting trade disputes worldwide.

Steel was a bright spot amid a fall in China's overall exports in July. Steel shipments surged 9.5 percent to 9.73 million metric tons in July from June and were up from 8.1 million tons a year earlier, customs data show. That’s the third-highest total ever. Sales rose 27 percent to 62.13 million tons in the first seven months. Iron ore purchases advanced to the year’s high.

Mills in China are facing slower domestic demand for the first time in a generation. They’re boosting exports, raising competition and pushing down prices. China produces half the world’s steel and exports are similar to output in Japan, the second-biggest producer. The industry is “bleeding to death,” Gary Klesch, chairman of Klesch Group, said on Aug. 4 after pulling out of talks to buy a Tata Steel Ltd. U.K. business.

“It’s because of weakness in domestic steel demand, which has led mills to push their excess out into the international market, and that’s something which is not going to change,” Ivan Szpakowski, commodities strategist at Citigroup Inc. in Hong Kong, said by phone on Saturday.

China’s set for the slowest expansion since 1990. Steel demand is poised to shrink this year and next for the first annual contractions since 1995 amid a property slump, according to the World Steel Association. With mills maintaining output, exports may rise to 111 million tons this year, says Colin Hamilton, head of commodities research at Macquarie Group Ltd.

Earnings Drop

Some mills may even be ramping up output before the government orders production cuts to ensure clean air for a parade in Beijing on Sept. 3 to mark the 70th anniversary of Japan’s surrender in World War II, according to UBS Group AG.

China boosted imports of iron ore by 15 percent to 86.1 million tons in July, the highest level since December, as mills in the world’s largest buyer replenished inventories. Purchases were 539 million tons in the first seven months, little changed from a year earlier, customs data show.

Global steelmakers are battling lower earnings as prices slump. Nippon Steel & Sumitomo Metal Corp., Asia’s biggest producer, forecast the first drop in full-year earnings in three years last month, while U.S. Steel Corp. posted a quarterly loss. South Korea’s Posco reported a profit slump and announced plans to cut staff and refocus on its main business.

Prices are retreating. The average U.S. rate of hot-rolled coil, used in buildings and automobiles, fell 33 percent to $456 a ton in the second quarter, according to The Steel Index. In China, rebar sank to the lowest level since 2003 last month.

There were eight trade probes on Chinese steel products in the first half, while a further five were added in July, according the China Iron & Steel Association.

ArcelorMittal South Africa Ltd., a unit of the world’s biggest producer, said last month it was going to fight steel from China, which is being sent to the country’s ports at prices as much as 25 percent below local output costs, and asked the government to impose tariffs.

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