No Respite From Steel Glut as China’s Exports Tipped at Record

  • Mysteel sees oversees shipments jumping 4 percent this year
  • Trade tensions are rising amid a global glut of steel

China is poised for another year of record steel exports as domestic demand fades and the country’s mills sidestep trade barriers by seeking new markets, according to Mysteel Research.

Shipments from the world’s top producer will accelerate in the second half as prices decline and margins are squeezed, Ren Zhuqian, chief analyst at Mysteel, formally known as Shanghai Ganglian E-Commerce Holdings Co., said in an interview. Exports could reach 117 million metric tons for the year, up 4 percent from last year’s record 112.4 million tons, she said.

“China’s output will fall from last year, but demand will decline even further and prices are going to be swinging around break-even for most mills,’’ said Ren, echoing Goldman Sachs Group Inc., which last week said the benefits of a stimulus-fueled bout of growth had already worn off and that demand will decline in the second half. China’s steel prices have unwound most of their unprecedented rally that peaked in April.

The nation faces a mushrooming number of trade complaints worldwide, and global steel oversupply was discussed by the Group of Seven world leaders meeting in Japan last month. In the latest sign of trade tensions, China’s commerce ministry on Thursday pushed back against the imposition of U.S. duties on some Chinese products, saying the lack of competitiveness in the U.S. steel industry is the result of too much protection.

New Buyers

China’s exporters are increasingly seeking new buyers in Southeast Asia, the Middle East and Africa where they see less protectionism and stronger demand, Ren said. China shipped 46.3 million tons of steel overseas in the first five months of this year, up from 43.5 million tons from a year earlier. Only 0.6 percent of that went to the U.S., while the top buyers were South Korea and Vietnam with more than 5 million tons each, according to data from China’s customs administration.

There are signs that China’s mostly state-run steel industry is starting to tackle oversupply, Ren said, adding she’s optimistic the government will fulfill its pledge to cut as much as 150 million tons of capacity by 2020. Meanwhile, steelmakers, particularly in the private sector, have become more willing to reduce output when margins evaporate.

“Companies will be less tolerant about making a loss in the second half,’’ said Ren. “The private steelmakers are more responsive to price and faster in cutting production.”

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