China is shipping ever more steel into world markets as its economy slows, leading to lower prices, reduced earnings at global producers and more trade disputes.
Mills in the country that produces half the world’s steel are maintaining output as domestic demand falters, exporting the surplus. Overseas sales surged 9.5 percent to 9.73 million metric tons in July, the highest level in six months, customs data released on Saturday showed. Exports expanded 27 percent to 62.13 million tons in the first seven months, the highest ever for the period, according to data compiled by Bloomberg.
China’s shipments are about the same as output in Japan, the world’s second-biggest producer, World Steel Association data show, and Credit Suisse Group AG says they that have reached extraordinary levels. Citigroup Inc. raised its forecast for net steel shipments from China to 100 million tons this year from 79 million in 2014, according to a report on Monday.
“It’s because of weakness in domestic steel demand, which has led mills to push their excess out into the international market,” said Ivan Szpakowski, commodities strategist at Citigroup. “That’s something which is not going to change.”
Chinese mills face declining domestic demand for the first time in a generation amid a property slump. Steel demand will drop this year and next to extend the first annual contraction since 1995, the World Steel Association said in April.
Chinese mills are extending maintenance programs in light of the weak demand, Australia & New Zealand Banking Group Ltd. said in a commodities report on Monday. In addition, some mills around Beijing may be ordered to shut capacity to clean up the air for a parade in Beijing in early September, it said.
The steel shipments were a bright spot in the country’s trade data, as China’s overall exports in fell 8.3 percent last month from a year earlier in dollar terms. That was below the estimate for a 1.5 percent decline in a Bloomberg survey and compared with an increase of 2.8 percent in June.
Chinese imports of iron ore climbed 15 percent in July to 86.1 million tons, the highest level since December, as mills in the world’s largest buyer replenished inventories that had fallen to the lowest level in 19 months. Purchases were little changed at 539 million tons in the first seven months.
Global steelmakers are battling lower earnings as prices slump. Nippon Steel & Sumitomo Metal Corp. 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.
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.
The slump may eventually push Chinese producers to cut back on production and exports. The collapse in Chinese prices is set to push already stretched local steel mills even further into the red, curtailing production and exports, Lakshmi Mittal, chief executive officer of ArcelorMittal, said last month.