Tangshan Donghua Steel Enterprise Group Co. in China was so eager for new customers overseas that it turned to cold-calling manufacturers and tried hawking metal on the e-commerce website run by Alibaba Group Holdings Ltd.
A glut in the world’s biggest steel-making country means that prices for basic products like rebar used in construction have collapsed, so Tangshan Donghua is targeting buyers outside China who pay more. The company now ships as much as 40 percent of its output everywhere from Southeast Asia to South America to the Middle East, and wants to expand exports even further.
“We don’t make any profit selling here,” Wei Guotong, assistant to Tangshan Donghua’s general manager, said in an interview Sept. 22 at the company’s mill about 170 kilometers (106 miles) east of Beijing. “If we sell overseas, we can at least make some money, although not much.”
After the Chinese steel industry expanded by 50 percent since 2010 to keep up with surging demand, mills can produce 210 million metric tons more than the market needs and a quarter of capacity sits idle, according to data compiled by Bloomberg Intelligence. With economic growth slowing, producers are reluctant to close plants, forcing a record pace of sales overseas, where competitors accuse China of dumping.
China, which produces almost half the world’s steel, shipped 52.4 million tons in the first eight months of this year, up 36 percent from a year earlier and more than the 42.5 million exported over the same period in 2007, when sales were at an all-time high, government data show. By year-end, the 2014 total may reach 85 million tons, according to Hu Yanping, an analyst at custeel.com, a researcher in Beijing. That’s 44 percent more than the 2007 record of 59 million tons.
Domestic Slump
It’s not hard to see why Chinese producers are looking abroad. The price of the steel reinforcement bars, known as rebar, waiting to load in Tangshan fell 3.5 percent to 2,619 yuan ($426.50) a ton Sept. 22, triggering a trading halt on the Shanghai Futures Exchange. They closed at 2,616 yuan yesterday, the lowest since 2009 and down 27 percent this year.
“Steel mills and traders have seen sales contract in September,” Macquarie Securities Ltd. analysts including Graeme Train and Angela Bi in Shanghai wrote in a Sept. 23 report. “There are now expectations of production cuts. This does not bode well for near-term raw-material demand and prices.”
Local governments resist attempts to close unprofitable mills to sustain employment levels and tax revenues, prolonging the glut, said Vanessa Lau, an analyst at Sanford C. Bernstein & Co. in Hong Kong. “Even after a few rather depressed years in terms of profitability, we still haven’t seen large-scale steel curtailments,” she said.
Selling Overseas
More of the surplus is heading to other countries. In the U.S., the sixth-largest buyer of Chinese steel, hot-rolled coil imports cost about $683 a ton on Sept. 19, the most since June 2012, according to data from Metal Bulletin. That compares with $487.50 for Chinese hot rolled coil exported on a free-on-board basis, the lowest since November 2009, the data show. The premium of about $196 is the biggest since December 2008.
Developing economies are buying a growing share of Chinese output, overtaking the U.S., which was the second-largest buyer in 2007. South Korea is the biggest so far this year, followed by Vietnam, the Philippines, Thailand and Singapore, according to customs data. Brazil, a former net exporter of steel, has climbed to 10th place from 24th seven years ago.
China “exports to everywhere,” said Curtis Zhu, a London-based analyst of iron-ore and steel markets at consultant Wood Mackenzie Ltd. “They’ve been exporting to other emerging markets, especially Southeast Asian countries.”
Anti-Dumping
Some of those shipments may spark trade disputes that could reduce purchases. The U.S. started a probe Sept. 17 into alleged dumping of steel shelving units at below-cost prices, and the government set preliminary duties on some wire rod imports from China in July. The European Union began investigations in June and August and is considering whether to renew tariffs for five more years on wire rod. Thailand imposed duties on cold-rolled products in January while Brazil started a probe on some steel pipe products last year.
The country won’t be able to increase exports next year “without encountering resistance,” said Shi Shengwu, a manager at the international trade unit of Wuhan Iron & Steel Co., a producer based in Wuhan. “It’s a very touchy issue.”
China’s own demand has stalled. During the first seven months of the year, consumption fell 0.2 percent to 438 million tons, Zhang Changfu, vice chairman at the China Iron & Steel Association, said at a conference in Ningbo earlier this month, according to a transcript of his comments posted online.
Source: Bloomberg Businessweek