Why the Chinese slowdown concerns steel plays the most


Dec. 4 2020, Updated 10:42 a.m. ET

Why the Chinese slowdown hurts steel plays

Earlier in this series, we discussed the slowdown in the European Union. While the European slowdown is a concern for steel companies, the real threat comes from China. China is the biggest steel consumer. It accounts for almost half of global steel consumption. Apparently, China was the key factor behind the commodity super cycle. In this part of the series, we’ll discuss the current scenario in China’s steel industry.

Is China entering a prolonged slowdown?

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The previous chart shows the annual growth rates for China’s steel consumption. As you can see, China was growing by double digits until 2008. This means that even during the global financial crisis, Chinese steel consumption was increasing. This was mainly due to China’s infrastructure creation. China built massive infrastructure to hold the 2008 Olympics.

Since 2009, steel consumption has slowed down in China. The growth rates have come down steadily. Chinese steel consumption is expected to grow 1% this year. It’s expected to grow 0.8% in 2015. The slowdown in Chinese steel consumption isn’t a healthy sign for global steel markets.

You can read more about the Chinese steel markets and the factors behind the current slowdown here.

Increasing steel exports from China

A slowdown in steel demand wouldn’t have such a large impact on global markets, if it was accompanied by similar cuts in steel production. Steel production is still increasing in China. The extra steel that China produces, enters international markets. The international markets are backed by subsidies from the Chinese government. They’re also backed by an artificially devalued currency.

Recently, China’s steel exports have hit record levels. We’ll discuss this in more detail in the next part of the series.

Chinese steel imports are a key metric that investors in ArcelorMittal (MT), U.S. Steel Corp. (X), AK Steel (AKS), Steel Dynamics (STLD), and the SPDR S&P Metals and Mining ETF (XME) should monitor closely.


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