Posted on 18 Oct 2024
China’s steel exports hit an eight-year high last month as the industry grapples with overcapacity from a property downturn and weak domestic demand, prompting warnings that the surge in exports could intensify trade tensions.
Overseas shipments of steel reached 10.15 million tonnes in September, up by 25.9 per cent year on year to the highest level since June 2016, according to customs data.
But the price of exported steel fell by 11.62 per cent year on year last month.
In the first eight months of the year, China exported 66.818 million tonnes of steel, up 31.8 per cent year on year, but the value of its steel exports fell by 10.7 per cent.
China produces more than half the world’s steel, and mainly uses it in areas such as construction, infrastructure, machinery and cars.
The construction sector historically accounted for 35 per cent of domestic steel consumption, but the prolonged crisis in China’s real estate sector has led to a slowdown in construction activity.
As of August, new home starts had declined by 22.5 per cent year on year, prompting steel manufacturers to seek overseas markets for their output.
The demand side also faces pressure, as the housing sector slump reduced the demand for steel
Yan Liang, Willamette University economist
The major overseas destinations for Chinese steel in the first eight months of the year were Vietnam, accounting for 10.25 per cent of exports, South Korea (8.71 per cent), and Indonesia (5.25 per cent).
“I think ultimately, the problems are twofold, one is that the low-end steel has an overcapacity issue but the high-end does not. It is part of a supply-side structural problem,” said Yan Liang, an economist at Willamette University in the US state of Oregon.
China’s annual steel output hit 100 million tonnes in 1996 and surged sevenfold over the next decade. Despite policies to curb output from 2016, rising profits drove production until further capacity cuts were implemented in 2020.
“The demand side also faces pressure, as the housing sector slump reduced the demand for steel,” Liang said, adding that the sector’s export push could increase trade frictions.
China is facing more trade investigations from multiple countries over its steel overcapacity, and this year has already been subjected to 28 such trade investigations from 12 economies, including the European Union, the United States, Brazil, Vietnam and Malaysia, according to the Ministry of Commerce’s China Trade Remedies Information platform.
In the first eight months of last year, there were only two related trade investigations, both initiated by the US, according to the website.
We must address issues like ‘zombie capacity’
China Metallurgical News
Analysts have argued for continued regulation of steel production in line with carbon emission targets, and more mergers and acquisitions, exits, and technological improvements to weed out low-end producers.
As of September 6, 95.7 per cent of 247 sampled steel enterprises in China were operating at a loss, according to steel consultancy Mysteel.
It projected that steel exports would reach 100 million tonnes this year, the highest level in eight years, with the export of overcapacity posing increased risks of trade investigations.
Last week, the China Iron and Steel Association organised a “necessary and timely” meeting to address the domestic overcapacity crisis.
“We must address issues like ‘zombie capacity’ [unviable enterprises sustained by government subsidies] as well as the ineffective removal of outdated production capacity,” the association’s China Metallurgical News reported after the meeting.
Addressing a news conference on Monday, customs spokesman Lu Daliang rejected claims of steel overcapacity, saying that most of the steel produced in China is used domestically.
Source:South China Morning Post
