What Is China Doing with Its Record Steel Production?
Chinese steel production has been strong this year and has been breaking one record after the other. In August, Chinese steel production rose 8.7% year-over-year (or YoY) to 74.6 million metric tons, which is a new monthly record.
Thanks to the significant surge in Chinese steel production (FXI), global steel production rose 6.3% YoY in August. In the first eight months of 2017, Chinese steel production rose 5.6% compared to the same period in 2016.
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Although China’s steel demand has been better than expected in 1H17, we saw mixed signals in August. The country’s August manufacturing PMI (purchasing managers’ index) was better than expected. The survey conducted by Caixin came in with a six-month high.
China’s fixed asset investment growth slowed to 7.8% between January and August 2017, compared to growth of 8.3% between January and July 2017. This represents the lowest growth rate in recorded in 18 years.
Car sales in China rose 5.3% YoY to ~2.2 million vehicle units in August. So far, the country’s car sales have defied the sales tax hike that became effective at the beginning of the year.
So far, better-than-expected domestic demand has helped China consume its record steel production domestically. Steelmakers such as AK Steel (AKS), U.S. Steel (X), and Nucor (NUE) have been expressing concern about higher Chinese steel exports.
However, we have started to see a meaningful decline in China’s steel exports over the last year. In the first eight months of 2017, China exported 54.5 million metric tons of steel—28.8% lower than the same period in 2016.