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Why Stable Chinese Steel Prices Could Support US Steel Pricing

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US steel prices

China has long been blamed for the global steel industry’s woes. Over the last few years, Chinese steel mills flooded international markets with cheap steel, pressuring global steel prices, which prompted many countries—including the United States—to impose trade actions against Chinese steel imports.

Chinese steel prices

However, Chinese steel prices have been strong this year. According to Antaike, average hot-rolled coil prices in China are currently in the ballpark of 4,200 yuan (~$636) per metric ton. Prices have risen more than 10.0% this year. Notably, Chinese steel prices have risen almost 40.0% from their April lows. Looking at November, we see that Chinese steel prices have been trending sideways.

According to China Daily, citing Gu Jianguo, deputy head of CISA (the China Iron and Steel Association), “China’s steel prices will continue to firm up in 2018 as production and supply are becoming more balanced.” He added, “Prices have seen a reasonable rebound, while it is quite normal to see tight supply and price fluctuations during certain periods.”

Positive for US steel pricing

Higher Chinese steel prices, coupled with the fall in the country’s steel exports, are positive for steel producers like ArcelorMittal (MT), U.S. Steel Corporation (X), and AK Steel (AKS). We should remember that Chinese steel exports have been falling for the last few quarters. In the first ten months of 2017, China exported 64.6 million metric tons of steel, which is 30.6% lower than the corresponding period last year. The country’s steel exports have fallen on a year-over-year basis for 14 consecutive months.

Stable Chinese steel prices could help US steel prices. In the next part of this series, we’ll look at the spreads between US and international steel prices to analyze how stability in Chinese steel prices could help US steel mills (NUE)(STLD).

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