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Steel Industry Midyear Update: Key Investor Takeaways

PART:
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Part 12
Steel Industry Midyear Update: Key Investor Takeaways PART 12 OF 14

Would a Global Backlash Halt China’s Steel Export Tsunami?

China’s steel exports

Previously, we discussed China’s steel overcapacity, also seeing that the resulting steel exports present the biggest challenge for the global steel industry. China needs to cut its steel production in order to restore sanity to international steel markets.

However, this is easier said than done. Although China had expressed earlier that it plans to close some of the polluting steel plants, steel production figures don’t seem to indicate this to be so.

Would a Global Backlash Halt China&#8217;s Steel Export Tsunami?

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Steel production has declined marginally

According to the World Steel Association, China’s steel production has declined 1.3% year-over-year in the first five months of 2015. Steel consumption, however, has declined at a much higher rate. Clearly, China is not doing enough to curtail its steel capacity.

Friction with trading partners

Almost every major steel-consuming country is crying foul over steel imports from China. Europe and India have already imposed anti-dumping duties on certain Chinese steel imports. Steel companies in Korea, the biggest buyers of Chinese steel, have also urged its government to check the threat of Chinese steel imports.

Some US companies, including AK Steel (AKS), ArcelorMittal (MT), and Nucor (NUE), have recently filed trade cases against imports of coated steel products from China. Nucor currently forms 4.1% of the SPDR S&P Metals and Mining ETF (XME) and 2.6% of the Materials Select Sector SPDR ETF (XLB).

As more countries act against Chinese steel imports, we might see some decline in Chinese steel exports in the coming months. If this were to happen, the global steel industry would stand to benefit.

However, steel prices in China could remain low in the coming months as well. We’ll explore the reasons in the next part of this series.

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