Overproduction continues in China despite sluggish demand at home
TOKYO -- China's steel
exports are soaring as Chinese steelmakers unload excess products on the
international market amid sluggish domestic demand, prompting some countries to
consider anti-dumping probes.
China
exported 53 million tonnes of steel in the first six months of this year, up
24% on the year, with the total for the calendar year likely to approach the
record high of 110 million tonnes set in 2015.
The
increase in inventory was more significant at steelmakers than at
distributors. They had been at roughly the same level until around 2020,
but manufacturers now have about 4 million tonnes more in inventory. Companies
are turning to exports as inventory pile up amid weak demand at home.
According
to major steel companies, prices on hot-rolled steel coils in the
Southeast Asian market have plummeted from around $700 to $900 per tonne,
including freight, in 2021 to mid-2022, to a range of around $510 to $520
due to increased exports from China.
Near-term
settlement prices for hot-rolled steel coil futures on the Chicago Mercantile
Exchange have also fallen sharply from over $1,000 at the end of last year to
around $660.
Major
Japanese steelmakers' exports are being hit by the downtrend as well. Nippon
Steel said at an earnings briefing in May that price declines in overseas
markets, due mainly to the influx of Chinese products, will drag down
business profit for fiscal 2024 by 90 billion yen ($573 million) compared
to fiscal 2023.
"We
must proceed with our strategy under the assumption that China's production
will continue at a high level and will force us into a tough business
environment," said President Tadashi Imai.
China's
export volume is small compared to its overall crude steel production last year
of just over 1 billion tonnes. But as the world's largest producer --
accounting for more than half of the world's 1.89 billion tonnes in 2023
-- if domestic demand drops, its excess capacity could disrupt the global
market.
The
last time China's steel exports surged, leaders discussed eliminating excess
capacity at Group of Seven and Group of 20 summits in 2016, leading to the
establishment of the Global Forum on Steel Excess Capacity (GFSEC).
China
withdrew from the GFSEC in 2019, saying it had completed its mission. The
country's production capacity, which fell from 2016 to 2018, started rising
again from 2019.
Chinese
steelmakers' profitability is also deteriorating. According to Sumitomo
Corp. Global Research, Chinese authorities conducted a survey of domestic
steel manufacturers and trading companies in April and announced a nationwide
campaign to curb crude steel production.
But
as shown by a 2.7% increase in crude steel production in May, "in reality,
production cuts are not progressing," said a source at a major Japanese
steel manufacturer. Some believe that local governments, which want to avoid
worsening employment and finances, are encouraging maintaining the status quo.
Of
particular concern for steel companies in developed countries is the rise
of high-quality steel plates in Chinese exports. Exports of steel bars for
construction purposes, which exceeded 30 million tonnes in 2015,
plunged to less than 6 million tonnes in 2023.
In
its place, Chinese exports of hot-rolled steel sheets, which are widely used in
manufacturing, climbed by more than 40% to just over 20 million tonnes in
2023, and reached nearly 12 million tonnes in only the first five months of
this year.
Japan's
steel imports rose on the year for 15 consecutive months through April, with
imports from China surging by 86% during that time. Indirect exports that go
through a third-party country or are otherwise processed to avoid anti-dumping
measures are raising concerns in many countries.
The
number of anti-dumping investigations worldwide has increased from five last
year -- three of which involved Chinese products -- to 14 launched this
year as of early July, with 10 involving China.
The
number of investigations is still low compared to the 39 cases each in 2015 and
2016. Some observers say that developing countries that are dependent on China
do not want to anger Beijing by launching such probes.
"China
is moving its manufacturing bases for electric vehicles and other products
overseas, and steel and parts exports to those places tend to increase,"
said Toru Nishihama, chief economist at Dai-ichi Life Research Institute.
Chinese
President Xi Jinping is promoting a strategy called "new quality
productive forces" to expand investment in advanced manufacturing such as
EVs and artificial intelligence, and major steel companies are rapidly
increasing their production capacity for electrical steel sheets used in EV
motors.
If
domestic overproduction becomes evident, China could guide the yuan lower to
boost exports in order to stimulate the economy.
"It
is inevitable that trade friction between the U.S. and China will intensify,
especially in given the U.S. presidential election," Nishihama said.