China’s steel and aluminum overcapacity has earned it the ire of several countries. While formally, the country has a policy of curtailing its excess industrial capacity and has apparently taken some steps in that direction, it still has considerable overcapacity.
Meanwhile, China’s Belt and Road Initiative was expected to help it tide over some of its industrial overcapacity by investing in infrastructure beyond its borders.
Belt and Road Initiative
To be sure, most of the projects under the Belt and Road Initiative have been awarded to Chinese companies that would largely use Chinese materials and a Chinese workforce. On the funding side, critics argue that the initiative is pushing smaller countries into a debt trap and that it’s simply China’s game plan to take control of strategic assets in other countries. Several countries, including Malaysia, have canceled projects related to the initiative amid concerns surrounding the high level of debt these projects entailed.
Exports have fallen
The avenues for China to export its steel woes have been limited. Several countries have stringent anti-dumping measures in place for Chinese steel exports, and some, such as India, are contemplating further measures. Lower Chinese steel exports are positive for global steel prices, which eventually benefits US steel and iron ore names (XME) such as U.S. Steel Corporation (X), AK Steel (AKS), Nucor (NUE), and Cleveland-Cliffs (CLF).
Speaking of steel stocks, even the Section 232 tariffs have failed to enthuse investors. Read Six Months of Tariffs: Has US Steel Industry Bounced Back? to see how steel stocks have fared since the implementation of the tariffs.
You can also read Will Trump’s Steel Tariffs Fail Like Bush’s Tariffs? for more analysis on the Section 232 tariffs.