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Chinese Steel Exports Remain High despite Friction

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Chinese steel exports

In July, China exported 10.3 million metric tons of steel. Chinese steel exports rose 5.8% YoY (year-over-year) in July. Exports have risen 8.7% YoY in the first seven months of 2016. The only consolation in July’s export data is the 5.8% decline compared to June. However, this was mainly due to the base effect. Chinese steel exports had surged to their second highest level on record in June.

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Friction with trading partners

Note that the European Union and the United States have already slapped anti-dumping duties on some Chinese steel products. India has also set a minimum import price for steel products to fend off cheap Chinese steel from its borders. However, despite China’s commitment to curtail its steel overcapacity and friction with several of its trading partners, China’s steel exports have refused to die down. China says that steel overcapacity is a global issue.

Impact on US steelmakers

For now, the US steel industry has managed to keep some of the overcapacity away from US borders through trade cases. However, given the global overcapacity, trade cases might not keep US steelmakers protected for long.

The issue of steel imports cropped up during most steel companies’ 2Q16 earnings calls. During its 2Q16 earnings conference call, AK Steel Holding Corporation (AKS) highlighted the increases in steel imports from Turkey, Vietnam, and Australia. AK Steel also said that “the gap between foreign and domestic prices has the potential to encourage increased import levels.” ArcelorMittal (MT) also expressed concern over rising Chinese steel production.

However, Nucor (NUE) doesn’t foresee any major import pressure later this year. According to Nucor, its customers don’t see much difference between domestic steel prices and final landed costs of imported steel.

Investors who want to avoid the hassles of picking individual stocks can also consider the SPDR S&P Metals and Mining ETF (XME). XME has invested more than half of its holdings in US-based steel companies. U.S. Steel Corporation (X) forms 5.5% of XME’s portfolio.

In the next part of this series, we’ll look at China’s July copper imports.

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