How Is Chinese Steel Consumption Progressing?



Chinese steel demand

Since China is the world’s largest steel consumer, it’s wise for investors in companies such as BHP Billiton (BHP), Rio Tinto (RIO), Vale (VALE), and Cliffs Natural Resources (CLF) to keep track of Chinese steel demand indicators.

In this part of the series, we’ll look at Chinese steel demand and production progression.

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May steel production

The graph above shows the trends in China’s monthly steel production. China produced 70.5 million metric tons of steel products in May 2016, according to data released by China’s National Bureau of Statistics. This represented a YoY (year-over-year) rise of 0.8%, the third straight monthly rise in China’s YoY steel production.

The rise was preceded by a 2.3% YoY fall in 2015. Notably, last year marked the first time since 1981 that Chinese steel production contracted on a YoY basis.

Are steel exports sustainable?

Domestic steel overcapacity has led Chinese steel mills to export steel to the United States (QQQ), Europe (VGK), and other markets. In May, China exported 9.4 million metric tons of steel, a YoY rise of 2.3%. This was the fourth consecutive month in which Chinese steel exports rose on a YoY basis.

In the first five months of 2016, China exported 46.3 million metric tons of steel. The country’s steel exports in the corresponding period last year stood at 43.5 million metric tons. However, that trend doesn’t seem to be sustainable given the increasing anti-dumping measures taken by these markets against cheap Chinese steel.

In the face of rising inventories and falling prices, steel production growth may not be as robust for the rest of the year. This would result in lower iron ore imports from seaborne players such as Rio Tinto, BHP Billiton, Vale, and Cliffs Natural Resources.

In the next part of our series, we’ll see how steel prices in China are performing.


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