China’s steel exports in March
China’s customs department recently released the trade data for March. China’s exports registered a year-over-year (or YoY) decline of 15% in March. A decline in Chinese exports is negative for the global economy, as it points to a global demand slowdown. However, steel companies like US Steel (X) and ArcelorMittal (MT) have a reason to be happy about China’s (FXI) March trade data. US Steel and Carpenter Technology (CRS) each form ~ 3.25% of the SPDR S&P Metals and Mining ETF (XME).
The previous chart shows the trend in China’s steel exports. Steel exports are down to 7.7 million tonnes in March, the lowest level in the last eight months. Chinese steel imports have declined for two consecutive months now. However, March steel exports are up ~15% on a YoY basis.
China has a preferential tax policy for alloy steel products. A lot of steel producers in China started adding a small quantity of boron to standard steel products, which helped them classify these steel products as alloy steel.
Boron alloy steel is estimated to be around one third of steel exports from China last year. Chinese authorities have now clamped down on this tax loophole. This could be a possible reason behind the decline in March steel exports.
Moreover, China has clamped down on several industrial units that were causing pollution. As per reports, China plans to reduce its steel capacity by 80 million tonnes this year. Overcapacity in the Chinese steel industry has negatively impacted the global steel industry.
The Chinese steel industry has been plagued by stagnant domestic steel demand. In the next part, we’ll analyze how Chinese steel demand indicators are shaping up.