Analysis-China’s steel sector has bigger worries than Biden tariff hike

By Amy Lv and Tony Munroe

BEIJING/SINGAPORE (Reuters) – U.S. President Joe Biden’s push to triple tariffs on Chinese steel imports strikes a mostly symbolic blow on an industry facing bigger concerns over faltering local demand and threats of even stronger blowback against China’s surging exports.

Steel consumption in the world’s second-largest economy is poised to shrink again this year as a protracted property crisis has yet to find bottom and as infrastructure demand growth slows after 12 indebted regions were ordered to halt certain projects.

The state-backed China Metallurgical Industry Planning and Research Institute (MPI) forecasts a 1.7% drop in China’s steel demand this year, following a 3.3% decline in 2023.

While China’s steel exports last year climbed more than a third to their highest since 2016 at 90.26 million metric tons, about 9% of its total crude steel output, just 598,000 tons of the shipments went to the United States. That was down 8.2% from volumes shipped to the U.S. the previous year and less than 1% of total Chinese steel exports worth $85 billion in 2023.

China, the world’s biggest producer and exporter of steel, is just the seventh-largest shipper of steel to the U.S., softening the blow of Biden’s proposal to raise to 25% the tariffs imposed by his predecessor Donald Trump on certain steel and aluminium products.

“We do not think there will be any big impact as the main destinations for China’s steel exports are Japan, South Korea, and Middle East countries,” said an analyst at a China-based steel trader who declined to be named as he was not authorised to speak with media.

Spurred by low local prices, Chinese steelmakers and traders are on track to match or surpass last year’s exports, with domestic information provider Lange Steel lifting its forecast to more than 100 million tons for 2024 after March shipments beat expectations.

China’s cheap steel products are also stoking complaints from beyond the United States.

Late last year, India imposed anti-dumping duties on some Chinese steel imports while Mexico announced a nearly 80% tariff. Thailand has launched a probe into Chinese rolled steel imports, and Brazilian steelmakers are urging their government to impose a 25% tariff on imports.

A report from a Chinese state-backed research agency identified a total of 112 statements from countries regarding anti-dumping and anti-subsidy moves on Chinese steel products in 2023, a rise of around 20 from 2022.

“We are expecting more trade frictions this year,” said David Cachot, research director at consultancy Wood Mackenzie.

DOMESTIC DOLDRUMS

Beijing’s latest support for the sector, a plan to back equipment upgrades in the industrial and farm sectors and speed consumers’ replacement of cars and home appliances, is unlikely to fully offset reduced steel consumption from the property sector.

Consultancy CRU Group forecast that an additional 8 million to 9 million tons of steel demand will be created over the next four years thanks to the policy. In comparison, the state metallurgical institute expects construction demand to decline 20 million tons, or 4%, this year.

Some analysts said they expect infrastructure-led steel consumption this year to grow just 1% to 2%, from previous expectations of 7% to 8%, after Beijing’s demand that a dozen regional governments delay or halt some state-funded infrastructure projects prompted other regions to follow suit.

In recent years, Beijing has imposed caps on steel production both to reduce supply and curb carbon emissions, and industry watchers and insiders say further output cuts are needed to curtail overcapacity.

“The steel industry faces a conspicuous contradiction -strong supply capability and dwindling demand,” Luo Tiejun, vice chairman of state-backed China Iron and Steel Association (CISA), told an industry event this week in southern China.

“The key to address this is that leading producers take the lead in reining in production pace based on demand,” Luo said, according to the group’s WeChat account.

EXPORTS TO THE RESCUE?

In March, Chinese steel exports climbed to 9.89 million tons, the highest for a month since July 2016, bringing the first-quarter total to 25.8 millions even as overall exports in the world’s second-largest economy contracted sharply.

Valued at $20.3 billion, China’s first quarter steel exports averaged $789 per ton, far above local prices averaging 4,145 yuan ($572.30), data from customs and consultancy Mysteel show.

A weaker-for-longer yuan against the U.S. dollar, partly due to delayed U.S. Federal Reserve interest rate cuts, is also expected to facilitate steel exports.

But exports are susceptible to uncertainty stemming not only from trade frictions but also growing overseas supply and the potential for Beijing to mandate output limits.

To be sure, global steel demand is expected to rise 1.7% to 1.793 billion tons this year, the World Steel Association said.

“Although some countries are building their own capacity to fulfil the increase in local demand, this cannot meet the demand quickly enough, which means that there is still room for steel from China,” said Kevin Bai, a Beijing-based analyst at CRU Group.

($1 = 7.2426 yuan)

(Reporting by Amy Lv in Beijing and Tony Munroe in Singapore; Editing by Tom Hogue)