Steel producers fear rising China exports

Leading global steel producers are bracing themselves for a surge in Chinese exports, as a marked slowdown in Asia's largest economy pushes its struggling domestic steelmakers to send more excess capacity abroad.

In September, Chinese steel exports hit 5.1m tonnes, up 22 per cent from the same month last year and the highest level in two years, according to customs data. Further increases in Chinese exports are likely to be felt by Asian and Russian producers, with the likes of Posco of South Korea and Nippon Steel of Japan facing more competition for export markets at a time of slackening worldwide demand. More News From Financial Times
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China's iron ore imports rise in August "The fact that the Chinese will have a very large capacity where some of it might be surplus is obviously a worry for the whole industry," says Prashant Ruia, chief executive of the Mumbai-based Essar conglomerate, which includes Essar Steel. "It can also affect global pricing, and it can certainly affect raw material pricing." China, the world's largest steel producer and consumer, has seen steel demand growth plummet to low single-digits this year, against a backdrop of falling demand in industries like construction and manufacturing. Data released on Wednesday showed the growth of China's economy slowing for the seventh consecutive quarter to 7.4 per cent from a year earlier. Industry figures suggest China's steel demand has slowed even more dramatically, and is set to expand by just 2.5 per cent this year, leading cash-strapped steel mills to push more products overseas. China's total steel exports rose by 10.2 per cent in the first nine months of this year compared with the same period last year, reaching 41m tonnes, or roughly 8 per cent of total output. Imports were 10.5m tonnes over the same period, down 12 per cent. "People have been on the watch for a surge in Chinese exports for some time," says John Lichtenstein, Beijing-based managing director of the metals practice at consultants Accenture. "But what is different now is how weak the market is globally, alongside a massive domestic overcapacity in China being exacerbated by slowing growth, which are conditions that seem ripe for an export surge." "Everybody knows that China has huge capacity and they can immediately crush the industry in another country," says Sajjan Jindal, chief executive of JSW, one of India's largest steel producers. "For example, if China decides to export just 10m tonnes a year in here, the Indian steel industry could be crushed." The economics of the Chinese steel industry, with its typically high-cost producers, make exports relatively unattractive, according to steel analysts, especially given expense of shipping material to distant markets in Europe and North America. "While it is unlikely that we will see major, widespread exports flooding global markets," says Mr Lichtenstein, "there will probably be mini-surges, with short, sharp export rises for particular products, or to particular countries." Concern among Chinese policy makers about the potential backlash from rival companies or nations over excessive steel exports, especially in the form of anti-dumping cases brought to the World Trade Organisation, is a further limiting factor. "When exports start picking up, and when other countries start saying 'ouch', they [the Chinese] do often back off," says Michelle Applebaum, managing partner at Steel Market Intelligence, a US-based research group. Korea is China's top steel customer, having bought 6.6m tonnes during the first eight months of this year, while Thailand, Vietnam, Singapore and the Philippines have also imported more than 1m tonnes during this time, according to Chinese data.