In China, the real estate industry, which is the largest source of demand for the steel industry, has been in a slump for several years. The Chinese authorities have not come up with effective solutions. Currently, with China’s steel industry, with a total output of 1 billion tons, showing no signs of improvement, this continues to impact international markets with the influx of low-cost steel products.
Due to low prices and insufficient domestic demand, China has increased its steel exports, leading to escalating trade tensions with Beijing and various countries. Currently, the Chinese authorities are facing the issue of oversupply in the real estate sector, with many infrastructure projects being halted or postponed due to high levels of local government debt. The normalization of domestic steel consumption in China seems distant, and it is expected that this year there will be a contraction in demand for steel products in China.
Thomas Gutierrez, an analyst at Kallanish Commodities, told Bloomberg, “There aren’t many positive factors for the steel industry, and the real estate downturn is expected to persist for several more years.”
According to data from Kallanish, China’s demand for steel in the construction industry is expected to shrink by 10% this year. This will reduce the proportion of steel consumption in the construction industry to about a quarter, which is remarkably low compared to the standards of the past 20 years.
Although there is expanding demand in China for electrical appliances and shipbuilding, the scale is too small to offset the impact of the real estate sector on the steel industry.
In recent months, the slowdown in demand has caused prices to plummet. The price of rebar used in construction is at its lowest since 2017, while the price of hot-rolled coils used in automobiles and home appliances has reached its lowest in nearly 4 years. For many high-cost manufacturers, production now means losses.
Other factors are also affecting steel prices. The Chinese authorities are implementing new quality standards for rebar, making it harder to clear existing inventory. Ahead of the rules taking effect in September, there have been panic selling situations reported by research firm Mysteel Global.
The plight of the Chinese steel industry is also impacting global trade. The largest steel producer outside China, ArcelorMittal, has expressed concerns that China’s “aggressive” exports are creating problems for the global steel industry, leading to prices below cost in the US and Europe. China’s export volume has reached the highest level since 2016, and ArcelorMittal’s worries have been acknowledged by various governments.
The significant increase in steel exports to Latin America has sparked trade retaliations in the region. Mexico, Chile, and Brazil have significantly raised tariffs on steel imports from China to protect domestic businesses, and other countries in the region may follow suit.
Earlier this year, Gabriela Fajardo Mejía, an international relations expert at the University of Navarra in Spain, told Dialogo Americas, “China’s production is affecting the Latin American economy, jeopardizing 1.4 million jobs in the steel industry and forcing many companies to suspend operations and lay off workers.”
On August 7th, Huachipato, the largest and only comprehensive steel mill in Chile, announced that it would “indefinitely suspend” operations starting from September due to the intensifying dumping of Chinese products, making it financially untenable to continue.
Recent anti-dumping cases in Vietnam have also raised concerns. Vietnam is China’s largest steel buyer to date, and if Vietnam imposes import restrictions, it could further push down domestic prices in China.
Steel industry players in South Korea have also voiced worries over China’s aggressive export strategies and falling supply prices, leading to a widespread downturn in the industry, causing concerns for the future.
The operating profits of the three major steel companies in South Korea notably declined in the second quarter. POSCO saw a 50.3% year-on-year profit drop, Hyundai Steel a 78.9% decline, and Dongkuk Steel a 23% decrease.
According to the Korea Iron and Steel Association, the total import volume of steel products in the first half of this year was 7.883 million tons, with Chinese products accounting for around 60%, approximately 4.725 million tons. The average price of Chinese steel products in the first half of the year was $863 per ton, lower than the global average of $977 per ton.
(Reference sources: Bloomberg, Business Korea, Dialogo Americas magazine)