(HSV VIETNAM GROUP) – China's steel exports are at an eight-year high as the real estate crisis has weakened domestic consumption in the country and raised concerns about global oversupply in some industries.
According to data from China's National Bureau of Statistics, in the first two months of this year, China's steel exports increased 32.6% year-on-year to 15.9 million tons, which was the highest level since 2016 during this period.
Analysts believe China's steel exports this year will match or exceed last year's, when exports rose to about 90 million tons - the highest level in seven years - as China's efforts to stimulate the economy and efforts to cut production appear to be insufficient.
“I certainly expect that China's exports overall will be stronger in 2024 than they were last year, and that's a trend we've seen over the last few years,” said Daniel Hynes, senior commodity strategist at ANZ Research.
China's steel exports in the first two months of the year over the years
Steel is a key barometer of growth in China's investment-intensive economy, which many fear will turn to oversupply in sectors from autos to solar panels as domestic consumption recovers weaker than expected after the pandemic.
China produces about 55% of the world's steel, so even a small increase in exports could lead to price pressure on world markets, analysts said. The last time China's steel exports reached such high levels was during the economic downturn from 2015 to 2016.
“There is too much steel in the world… Even if China pulls back, there will still be too much steel,” said Colin Richardson, head of steel at price reporting agency Argus Media.
The rising forecasts for China's exports come after annual meetings of parliament and its affiliated political advisory body, in which the government announced a less aggressive stimulus program than expected.
Chinese steel companies began offering export contracts at significant discounts, said Tomas Gutierrez, analyst at Kallanish Commodities.
“Our initial expectation is that exports may ease this year if the real estate market stabilizes. But with real estate still in decline, it seems certain that exports will be strong now,” he said.
The weaker economic outlook is also weighing on iron ore prices, said Harry Murphy Cruise, an economist at Moody's Analytics.
“The lack of meaningful stimulus from meetings of Chinese authorities last week dented the construction pipeline this year, pushing iron ore prices down to only about $100/ton, the lowest since August 2023,” he said.
Besides weaker domestic demand in China, easier monetary policy in developed markets, expected to be introduced later this year, will provide an external boost to the country's steel exports.
Analysts at BMO expect China's steel exports to reach 75 million-80 million tons this year as output remains stable despite the weak economy.
China is shifting steel to overseas infrastructure projects in developing markets that it typically finances and builds itself, such as those under the Belt and Road Initiative, said Colin Hamilton, commodities analyst at BMO.
“In the past trying to export steel to the rest of the world was just economic…This time it is more geopolitical and strategic, gaining influence in the global south through intensive investment in steel,” he said.
Western manufacturers are better protected from the impact of China's growing exports than in 2016, some analysts say, largely thanks to tariffs and other trade barriers targeting Chinese imports, as well as subsidies for green steel.
But analysts say Chinese steel is still finding its way into Western markets through other Asian countries.
Ha Diem HSV