Steel products

Return to steel production regulation will change the dynamics of the value chain

Chinese steelmakers are facing the challenges of falling domestic steel demand and certain threats to growing exports, Reuters reports.

China’s steel consumption will decline again this year as the protracted real estate crisis has not yet bottomed out, and infrastructure demand growth is slowing after 12 debtor regions were ordered to halt certain projects.

China’s Metallurgical Industry Planning and Research Institute (MPI) predicts a 1.7% drop in steel demand in the country this year after a 3.3% decline in 2023.

China’s steel exports increased by more than a third last year to the highest level since 2016, up to 90.26 million tons. The volume of supplies to the United States in the period decreased by 8.2% y/y – to 598 thousand tons. They account for less than 1% of China’s total steel exports worth $85 billion in 2023.

China ranks only seventh among the largest steel suppliers to the United States, which softens the blow from Joe Biden’s proposal to increase tariffs on certain types of steel and aluminum products by up to 25%. Analysts note that this is unlikely to have a major impact, as the main destinations for Chinese steel exports are Japan, South Korea, and the Middle East.

Chinese steel producers and traders are on track to match or surpass last year’s export volumes. Domestic information provider Lange Steel raised its forecast for 2024 to more than 100 million tons after the release of March figures.

However, protective measures against Chinese steel are also being strengthened. A report by a Chinese research agency shows 112 country applications for anti-dumping and anti-subsidy measures against steel products from China in 2023, which is about 20 more than in 2022. David Kasho, research director at Wood Mackenzie, notes that the company’s analysts expect more trade disputes this year.

Exports are also vulnerable to uncertainty arising not only from trade disputes, but also from growing overseas supply and the likelihood that Beijing will impose production restrictions.

According to Luo Tijun, vice chairman of the China Iron and Steel Association (CISA), the country’s steel industry is facing a contradiction – strong supply potential and declining demand. The key to solving the problem is for the leading producers to take the lead in keeping production rates in line with market demand.

At the same time, according to Fastmarkets, China’s return to steel production regulation in 2024 is changing the dynamics of the value chain. In particular, some sources in the domestic rolled steel market were skeptical about price support from this move, believing that the cost of iron ore, coking coal, etc. plays a more important role in this process. Some market participants believe that a correction in steel production or official signs of it will finally reduce demand and prices for raw materials in the industry.

As GMK Center reported earlier, in the first quarter of 2024, Chinese steelmakers reduced steel production by 1.9% compared to the same period in 2023, to 256.55 million tons.

In March, steel production in the country fell by 7.8% y/y – to 88.27 million tons.