Chinese steel prices
One of the factors driving US and global steel prices has been rising Chinese steel prices. Before we analyze whether Chinese steel prices can be sustainable at higher levels, let’s see how Chinese steel prices impact US steel prices.
Relationship with US steel prices
Chinese steel prices affect steel prices all over the world. China is the biggest steel exporter. Last year, China exported 112 million metric tons of steel products. This is more than what Japan, which is the second largest steel producer, produced in the entire year. Low-priced Chinese steel imports have led to lower steel prices across the globe and the US is no exception. As the landed cost of Chinese steel imports goes up, steel prices globally will improve.
Impact on US steel companies
Another question is whether US steel companies like Steel Dynamics (STLD) and Commercial Metals Company (CMC) really need to worry about Chinese steel exports. After all, Chinese steel exports to the US have fallen steeply over the last few months as can be seen in the graph above. In January, China accounted for only about 3.5% of US steel imports.
Having said that, though China’s direct steel exports to the US have fallen, we could be seeing a displacement of exports. Korea is a case in point. Korea has emerged as a top steel exporter to the US. On the other hand, Korea is the biggest destination for Chinese steel products. Many analysts argue that Chinese steel is possibly being exported through Korea.
Nonetheless, higher Chinese and global steel prices would help US steelmakers justify their price increases. Meanwhile, is the rally in Chinese steel prices sustainable? We’ll explore this in the next part of the series.
You can also consider the SPDR S&P Global Natural Resources ETF (GNR) to get diversified exposure to international natural resources companies. Almost a quarter of GNR’s holdings are invested in steel and other metal companies. Together, BHP Billiton (BHP) and Rio Tinto (RIO) form 6.2% of GNR’s portfolio.