- Ongoing China’s real estate crash is causing a ripple effect in the steel industry.
- Market prices for steel have fallen sharply in Asia amid the flood of Chinese exports.
- At the same time, Sub-Saharan Africa metal exports are relying on anti-dumping laws to stay afloat.
China’s real estate bubble has busted and with it caused a global ripple in the metal markets and especially the Asian economic giant’s steel exports business.
Stanislav Zinchenko the CEO of GMK Center notes that China’s investments in the real estate and construction sector in general, which are the largest consumers of steel, fell by 7.2 per cent between January and May of last year.
The first effect of the real estate crash has been the drop in demand for steel products. With the fall in domestic demand for steel, China has turned to the new frontiers to drive steel exports.
The result of China looking for external markets is a surge in the global supply of steel sheets. In turn, the surplus supply has affected prices ruffling other global exporters such as South Asian metal exporters as well as exporters from African economies.
Following the basic rule of economics; increase in supply causes a drop of prices, the influx of China’s steel in the global market has caused a significant drop in prices of steel.
“The surplus is now being diverted to the international market, aided by the weak yuan. As a result, the price of hot-rolled steel sheet in China sank to nearly $500 per tonne this autumn, down from roughly $900 in mid-2021,” reports Nikkei Asia in its interview with Nippon Steel, a major steel exporting company.
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China’s steel exports projected to rise
In the report, the author cites that “market prices for steel have fallen sharply in Asia amid the flood of Chinese exports,” causing what the producer described as an “unprecedentedly harsh business environment.”
As of last year, China was reported to have exported around 90 million tonnes of steel. This enormous amount is projected to reach the highs of 2015 when China clocked more than 110 million tonnes in export of steel products.
According to the report, “exports of hot-rolled steel sheet topped 14 million tonnes between January and September, surpassing the full-year total for 2015.”
Whether it is exporting of steel sheets or higher value steel products, at the end of the day, China’s increased export of steel amounts to dumping.
A few years ago, back in 2015 when China’s steel exports were at their highest, it sparked the need for the creation of anti-dumping measures in a bid to stabilize global prices of steel exports.
By definition, if a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product according to the World Trade Organisation (WTO).
As of 2019, China became the world’s largest steel exporter and represented about 15 per cent of all steel exported globally. According to the International Trade Administration, “the volume of China’s 2019 steel exports was almost double that of the world’s second-largest exporter, Japan.”
Effect of influx of China steel to African exporters
As of 2018, Chinese steelmakers started seeking new export destinations in Africa and South America. China turned to Africa as their biggest overseas buyers in Southeast Asia could no longer usurp its steel owing to new US trade restrictions.
Notably, China has established a significantly active presence across Africa. Trade between China and Africa grew sharply from US$1 billion in 1980 to a whopping US$128 billion as of 2016. In fact, since the turn of the millennium, China has provided cumulative loans of US$143 billion in Africa.
China is by far Africa’s largest bilateral creditor and given all these facts, it is difficult for Africa to put any limitations to China’s steel. Even though importing steel from China affects domestic markets, African countries have an obligation to China so to speak.
Last year, China’s steel exports in the first six months of 2023 rose sharply by 32 per cent y-o-y according to the Chinese customs and SteelMint data.
Consider this, exports of steel products by China in January-June’23 reached 43.88 million tonnes (mnt) compared with 33.28 mnt in the corresponding period the year before.
Here we can see the rising trend clearly, when you look at the 2022 data, China’s steel exports in 2022 stood at over 67.44 mnt, edging up from 66.91 mnt in 2021.
Given the trend, “…it is expected that exports this year may edge higher than in 2022- even exceeding 69.55 mnt recorded in 2018- on increased shipments,” reports BigMint, a major mining publication.
Despite threats of anti-dumping measures, China does not seem to have any plans to slow down its steel production rate. An interesting indicator to this fact is that the level of blast furnace capacity utilization among China’s 247 steel plants has actually reached a new maximum of almost 92 per cent.
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Decrease in demand of steel products in China
Other than the firing up of its blast furnaces to continue or increase its steel production, ChinYuan against the dollar. The effect of a depreciated yuan is that now its currency has become more competitive compared to the expensive dollar.
To simplify this concept, by lowering the value of its currency, China has effectively made it easier for traders to buy the Yaun and to trade in Chinese products like steel.
The GMK Center CEO also points to high demand for steel from some importing countries in the Middle East and North Africa (MENA).
“In January-May 2023, the volume of Chinese exports to these markets increased by 63 per cent compared to the same period in 2022 – up to 10.3 million tons,” he notes.
The sector expert cites that for example; “the Middle East is slowly shifting its focus from oil infrastructure to billion-dollar infrastructure projects to speed up the economy, which requires significant volumes of steel imports.”
Finally lets hear from the mouth of the giant steel exporter; Chinese Baosteel revealed to media that it expects that “…the export of rolled steel from the country will continue to grow amid decrease in demand for steel in the domestic market.”
After that admission, Baosteel reveals the plan; “the process of increasing the export of steel products will be gradual and slow, and will also depend on the balance between the domestic and foreign markets during a certain period.”
