China’s Steel Exports Face Headwinds as Trade Backlash Worsens

(Bloomberg) -- China’s flood of steel exports could ease in coming months, as a backlash from trade partners seeking to protect their domestic industries builds momentum.

Vietnam is the latest importer to initiate an anti-dumping probe into Chinese steel, as soaring overseas sales worsen economic frictions around the globe. The Southeast Asian country is the biggest foreign buyer of the alloy from China, and joins nations including the US, Saudi Arabia and Chile in launching or preparing trade measures to tackle the surge.

“If the results of Vietnam’s anti-dumping investigation are negative to China, future exports could face a lot of pressure,” said Wei Ying, an analyst at China Industrial Futures Ltd. Chinese steel exports to the nation nearly doubled in the first six months of the year and accounted for 12% of the total, she said. 

China shipped over 53 million tons of steel in the first half, the strongest pace since 2016, although exports have receded somewhat since March. While further moderation is on the cards, overseas sales are likely to remain elevated by historical standards. Foreign markets are crucial to replacing consumption at home, which continues to be undercut by the protracted crisis in the property market and subdued state spending on infrastructure. 

Export figures for July are due on Wednesday. The latest purchasing managers’ index for the steel industry pointed to worsening conditions in the domestic industry. While the gauge of new export orders rose slightly last month, the index component remains in contraction.

Heavily Oversupplied

China’s steel market remains heavily oversupplied. The spot price of reinforcement bar, the backbone of construction, hit its lowest level in more than seven years last week, according to state-owned researcher Beijing Antaike Information Development Co. Meanwhile, export prices of hot-rolled coil, used for appliances and car bodies, are close to their cheapest since 2020. 

The country’s main steel association has called for self-discipline on exports, because relying on sales of commoditized goods doesn’t help the industry develop higher-value products. Steel mills have also drawn the attention of regulators over allegations they skirt taxes to make their exports even cheaper, according to analysts. 

Still, the impact of the government’s tax scrutiny is likely to be limited, said He Jianhui, an analyst at SDIC Essence Futures Co. 

Although China’s output has fallen slightly this year, steelmakers have been unwilling to surrender market share by making the swingeing cuts necessary to balance supply with demand.

“Steel mills need to survive because output remains elevated, and as long as the product is cheap enough, there will always be a home for it,” He said. 

On the Wire

China’s new standard for steel rebar taking effect in September may trigger a rapid selloff of old-standard long steel and put pressure on prices in the near term, said Bloomberg Intelligence.

Falling battery and battery component prices, weakening demand and rising trade tensions pose challenges for China’s lithium-ion battery supply chain, said BloombergNEF.

To get an idea of why the oil industry keeps failing to see the demand lift from China that it’s been waiting for all year, consider this: The area of buildings that broke ground in the six months through June was the lowest since 2009.

This Week’s Diary

(All times Beijing unless noted.)

Tuesday, Aug. 6:

Wednesday, Aug. 7:

Thursday, Aug. 8:

Friday, Aug. 9:

--With assistance from Martin Ritchie.

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