Must-know: The biggest risk US steel companies face

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Dec. 4 2020, Updated 10:52 a.m. ET

Biggest risk 

In the last part in the series, we discussed the U.S steel industry’s strong demand outlook. The world steel association expects steel demand to grow in excess of 5% in North America this year. You can read more about the short-range outlook released by the World Steel Association by clicking here.

Strong steel demand should turn into higher revenues for U.S. steel companies—like Steel Dynamics (STLD). However, rising imports have impacted steel demand. As a percentage of domestic demand, steel imports reached historic highs. This means that the benefit of domestic U.S. demand is going to foreign steel companies.

Chinese steel exports reach record levels

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Chinese steel exports are the biggest concerns for steel producers globally. The Chinese government took some measures to reduce steel production. However, the ground situation tells a completely different story. Steel production in China has been rising, but consumption has been stagnant. This leads to an increase in steel exports from China.

Chinese steel exports reach new highs

The above chart shows the net steel exports from China. Net exports are the total exports minus total imports. China has been a net exporter of steel for several years. Chinese steel exports have been on an uptrend this year. The net exports reached a new height of 7.14 million metric tonnes in September 2014.

It’s believed that the U.S. is the biggest overseas market for Chinese steel. These cheap imports are negative for steel companies and exchange-traded funds (or ETFs) like ArcelorMittal (MT), U.S. Steel Corp. (X), AK Steel (AKS), and the SPDR S&P Metals and Mining ETF (XME).

U.S. authorities have taken a tough stance against these imports. Anti-dumping duties have been imposed on several steel products. Recently, the U.S. revoked a 15-year treaty with Russia. We’ll discuss this in the next part of the series.

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