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Could a Slowdown in Chinese Steel Demand Spell Trouble?

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Chinese steel demand

China’s May economic data have raised concerns about the country’s economic activity. Industrial production and retail sales were weaker than expected. Its May fixed asset investment and real estate data also failed to impress. In the first five months of 2018, China’s fixed asset investments grew 6.1% YoY (year-over-year), the slowest growth in two decades. According to Reuters, last month’s retail sales growth was the weakest in 15 years.

Last year, a strong domestic demand and supply-side reforms kept Chinese steel exports in check. However, 2018 has been a different ballgame so far. While China’s steel production has inched up, its steel demand has shown signs of moderation.

Chinese steel exports

We’ve started to see an increase in Chinese steel exports. It exported ~6.9 million metric tons of steel last month. May is the fourth consecutive month that its steel exports have risen month-over-month. In absolute terms, steel exports in May were the highest since July 2017. Read US-China Trade Deficit Wobbles amid President Trump’s tariffs for a detailed analysis of China’s May trade data.

While the Section 232 tariffs have helped buoy US steel prices, imports are still running at elevated levels. Higher steel prices are expected to boost earnings of US steel companies, including U.S. Steel Corporation (X), AK Steel (AKS), and Nucor (NUE). However, rising steel prices even have the United States Commerce Department worried. Read Are President Trump’s Efforts to Save Steel Worth the Pain? to explore more.

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