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What’s Fueling Chinese Steel Exports despite US Tariffs?

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May. 9 2018, Updated 6:33 a.m. ET

Chinese steel exports

In March, President Trump imposed Section 232 tariffs on steel imports. Although the tariffs were subsequently watered down to temporarily exempt several countries that collectively account for almost two-thirds of US steel imports, China is still covered under the tariffs.

The tariffs and the subsequent escalation in the US–China trade friction dented the general market sentiment. Broader markets also came under pressure, and the SPDR Dow Jones Industrial Average ETF (DIA) is trading with a year-to-date loss of 1.6% based on May 7 closing prices.

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Exports rise

China’s steel exports have risen sharply in April despite these US tariffs. China exported ~6.5 million metric tons of steel in April. While imports were similar to the corresponding period last year, they rose sharply on a monthly basis.

In absolute terms, April’s steel exports are the highest since August 2017. Prior to April, Chinese steel exports had registered a double-digit yearly decline for 19 consecutive months. However, Chinese steel exports have risen on a monthly basis for three straight months.

Factors fueling exports

China’s steel production has been running strong this year. However, the demand growth may not be able to keep pace due to the slowdown in the country’s construction activity.

In the near term, higher Chinese steel export levels are not a major concern for US steelmakers like U.S. Steel Corporation (X), AK Steel (AKS), and Nucor (NUE). However, the United States might need to impose quotas on the countries that have been exempted from the Section 232 tariffs to prevent a spike in US steel imports (STLD).

In the final article in this series, we’ll look at China’s April copper imports.

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