Why Did Chinese Steel Exports Decline In February?

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Chinese steel exports registered a sharp 29% year-over-year decline in February, which should provide some respite to steelmakers globally. [1] Steel companies around the world have suffered over the past few years as a result of alleged unfair competition from steel exports from China, the world’s largest exporter of the commodity. Based upon petitions from steelmakers, trade authorities in the U.S. and Europe have imposed punitive tariffs on Chinese steel imports in order to stamp out these unfair trade practices. [2] While the imposition of punitive tariffs on Chinese steel exports have contributed to the decline in the same, an increase in domestic demand for steel in China has been the major reason for the decline in exports.

China has witnessed a decline in domestic demand for steel over the past few years as a result of slowing economic growth. In order to revitalize economic growth and the domestic demand for steel, the Chinese government has provided a fiscal stimulus to its economy, boosting infrastructure investment. [3] This has translated into an increase in domestic steel prices and demand in China, while at the same time boosting steel production. As per World Steel Association data, China’s steel production rose 6% year-over-year in the first two months of 2017. [4] The improved demand conditions have helped absorb the higher steel production and have translated into lower exports, at least in the early part of 2017. Should Chinese steel producers continue to focus on their domestic markets, American steel companies such as U.S. Steel should benefit from the improved demand outlook for steel in the U.S., driven by the government’s planned revamp of domestic infrastructure. Our forecast for U.S. Steel’s Flat-rolled steel shipments reflects the improved demand conditions.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for U.S. Steel

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Notes:
  1. China’s Feb. steel exports slump to three-year low, iron ore down, Reuters []
  2. China Challenges U.S., EU Over WTO Antidumping Duties, Wall Street Journal []
  3. China plans $720B infrastructure investment, but iron ore still oversupplied, CNBC []
  4. February 2017 crude steel production, World Steel Association []