Chinese steel production on the rise

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/21

With the recovery in construction, steel prices have risen rapidly on China’s domestic market. Even with this month’s moderation in the rise in prices, China’s steel price index last week was still up 30 % from the start of the year. Crude steel production recovered from its around a year-long decline (up 2 % y-o-y in March-April). The production is expected to continue to grow in coming months, as several steelmakers have announced plans to reactivate closed mills due to higher prices. Chinese observers expect about 50 million tonnes of additional production capacity to come back on stream. Chinese steel production in 2015 was about 800 million tonnes, or about half of global production.

The Chinese export considerable amounts of steel. In January-April, the export volumes of Chinese steel products were up about 8 % y-o-y, which was lower growth rate than in recent years. About 70 % of Chinese steel exports goes to Asia, which also accounted for most export growth. Exports to the EU were up about 7 % y-o-y, while exports the US fell by 65 %. The US has imposed a range of import duties on Chinese steel, charging that Chinese steel is sold at prices below actual production cost. In recent weeks, the US has stepped up its anti-dumping campaign, imposing duties as high as 500 % on certain Chinese steel products. Many other countries have also imposed anti-dumping duties on Chinese steel.

As China’s economy slows and evolves towards a more consumption- and service-driven paradigm, its steel overproduction is offloaded onto global markets. This situation is particularly disconcerting for steelmakers elsewhere, and the matter is on agenda at this week’s G7 meeting in Ise-Shima, Japan. China’s government has pledged to reduce its annual capacity in the sector by 100–150 million tonnes by 2020, but observers hold out little hope for the project’s success. China has attempted similar measures before with meagre results.

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