Earlier this year, China announced plans to curtail its excess steel capacity. It has reiterated that same commitment several times. However, despite these commitments and friction with several of China’s trading partners, China’s steel exports have refused to die down. In June, China exported 10.9 million metric tons of steel.
Cause of concern
The data are worrisome on several counts. First, they represent a 21% year-over-year (or YoY) increase. Second, in absolute terms, Chinese steel exports are the highest since September 2015 and the second-highest ever. Global steel markets might not be able to absorb so much Chinese steel every month without its impact being visible in steel prices.
However, steel has actually been the best-performing metal this year when we look at other industrial metals such as iron ore, copper, and aluminum. This is despite the chronic oversupply in the global steel industry. You can read more about global steel overcapacity in Is the Steel Industry Really Turning Around?
For now, the US steel industry has managed to keep some of the overcapacity away from US borders through trade cases. US steel imports have fallen 31% YoY in the first five months of 2016. Fewer imports have given US-based steel producers (XME) pricing power, at least in the flat-rolled space.
Having said that, the issue of massive overcapacity is dangerous for the US steel industry. Over the medium to long term, the country can’t prevent steel buyers from accessing cheaper steel in international markets. Read Steel Industry Mid-Year Review: Can the Party Continue? to explore why US steel prices could fall from these levels.
In the next part of the series, we’ll look at China’s June copper imports.