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Should the Fall in Chinese Steel Prices Worry AK Steel?


Dec. 4 2020, Updated 10:50 a.m. ET

Chinese steel prices

China is the world’s largest steel producer, consumer, and exporter. Last year, we saw a steep rally in Chinese steel prices. Chinese steel prices have also seen upward momentum this year, and they’ve built on last year’s gains.

However, Chinese steel prices have come under pressure over the last few weeks. According to data compiled by Antaike, average HRC (hot rolled coil) prices have fallen almost 10% since their February 2017 highs.

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Impact on US steel prices

So, what do Chinese steel prices have to do with US steel prices? Currently, China isn’t a major exporter to the United States. The country accounts for only ~2% of US steel imports. Having said that, Chinese steel prices impact steel prices all over the world, as they tend to put a floor under international steel prices.

As Chinese steel prices rose last year, we saw rises in steel prices in other regions as well. Higher international prices increase the landed costs of steel imports in the United States, indirectly helping US steel pricing for steelmakers (XME) such as U.S. Steel Corporation (X), AK Steel (AKS), Nucor (NUE), and ArcelorMittal (MT).

Risk for steelmakers

In our view, falling Chinese steel prices are a bigger risk for US steelmakers compared to the concerns over President Donald Trump’s proposed infrastructure investments. Simply put, if global steel prices follow Chinese steel prices down, US steel mills could find it tough to justify higher selling prices.

In the coming parts of the series, we’ll look at China’s steel indicators to understand the outlook for Chinese steel prices.


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