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Trump Trade War – China’s steel exports are rising again

Mr Andy Home wrote in Reuters that as the steel trade war heats up, it’s easy to forget that this all started with China’s chronic over-production and resulting massive exports in the middle of the decade. In 2015 China exported 112 million tonnes of steel products more than the United States, Canada and Mexico’s combined production that year. The export pace has slowed since then because of capacity closures and stronger internal demand in China. But with Chinese steel production hitting fresh highs with each passing month and exports rising again, how worried should the rest of the world be?

According to the National Bureau of Statistics, China produced 80.2 million tonnes of crude steel in June. That was equivalent to 976 million tonnes on an annualised basis, the third straight month of what Beijing said were “record” annualised run rates.

China has closed about 150 million tonnes of steel production capacity over the past couple of years, but much of this was “illegal” capacity built and operating without the correct permits, meaning that none of this output was in the statistics bureau’s historical count. We may never know how much steel China produced before the capacity closures. Even the Chinese authorities may never know. June’s production, therefore, may or may not have been a record.

What we do know is that the removal of this supply stream, both heavily polluting and of dubious quality, has created the space into which China’s official sector is now expanding. Collective capacity utilisation rates are rising, and with them profitability. Chinese steel mills are making a profit margin of about 800 yuan (USD 119.50) per tonne of steel, according to research house CRU. Margins at some mills in the north of the country are at more than 1,000 yuan per tonne, one of the highest on record, according to analysts at Huatai Futures.

Given the strength of steel output growth, it’s not entirely surprising that exports have started to rise as well, even with continued strong domestic demand. Steel product exports have accelerated every month since January. June’s tally of 6.94 million tonnes was the highest monthly flow since July 2017, albeit significantly down from peak export periods in 2015 and 2016. The weaker yuan may be acting as an accelerant, but the trend is clear. Furthermore, it’s a trend that is worrying policymakers in steel-producing countries around the world, with signs that China’s own steel demand drivers infrastructure and construction are slowing.
Source : REUTERS
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