China’s steel exports
We’ve already seen how lower iron ore prices will make a dent in the earnings of integrated steel companies. We also saw that Chinese steel producers will gain from lower seaborne iron ore and coal prices. China is the largest buyer of seaborne iron ore and coal. It has benefited from the price drop for these commodities.
June exports rise 25% year-over-year
The above graph shows the trend in China’s steel exports. In June, exports increased 25% year-over-year. In the first six months of 2015, China’s steel exports increased 27% compared to the previous year. The surge in China’s steel exports is only adding to a global oversupply.
It’s worth noting that China’s steel exports are increasing on a high base year. Last year, China exported a record 93 million metric tons of steel. Higher Chinese steel exports have already created a glut of steel in international markets, which has led to depressed steel prices.
The China Iron and Steel Association expects Chinese steel demand to fall 6% year-over-year in 2015. However, steel production is expected to fall only about 1% over this period. As steel’s domestic demand sputters without a proportionate adjustment in steel production, China’s steel exports continue to rev up.
Negative for steel industry
Higher Chinese steel exports are negative for the global steel industry. US steelmakers like US Steel (X), AK Steel (AKS), and Nucor (NUE) have filed anti-dumping cases against certain Chinese steel products.
In the next part of this series, we’ll take a look at the worrisome trend in US steel imports.