U.S. Steel Rebound Undermined by China Exports: Chart of the Day

A nascent recovery in steel prices for U.S. producers is being undermined by a flood of cheap exports from China, where output keeps rising even as local demand weakens, according to MEPS International Ltd.

The CHART OF THE DAY shows the premium for U.S. hot-rolled coil, a benchmark product, over Chinese exports is approaching a two-year high, with a spread near $100 a metric ton. The gap encourages Chinese producers to ship surplus metal overseas, helping to cap gains in prices abroad including in the U.S.

“The Chinese are taking advantage of an opportunity,” said Peter Fish at MEPS in Sheffield, England, where the world’s first steel ingots were cast in the 1850s. “The arbitrage should narrow. The amount of imports into the U.S has increased significantly; they will become a factor in future pricing.”

Rising Chinese shipments may spur U.S. anti-dumping action, according to Macquarie Group Ltd. The U.S. Commerce Department said in June that deliveries of some steel threaded rod from China was sold in the U.S. at less than fair value. Similar claims against Chinese solar panels led to preliminary dumping margins in the U.S. and minimum prices in Europe.

China’s steel exports in July jumped 57 percent from a year earlier, according to local customs data. Shipments grew by 10 million tons in the first half, while imports to the U.S. rose 4.9 million tons in the period, Macquarie figures show. ArcelorMittal, the world’s biggest producer, sees U.S. steel demand expanding by as much as 6 percent this year.

“Chinese steel exports have risen by more than 33 percent in 2014 and are on an annual pace to reach 75 million metric tons this year, equivalent to the U.S.’s entire production,” Bloomberg Intelligence analyst Kenneth Hoffman said last month.

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