Chinese CSP Shoots Up in March

The decline in Chinese domestic demand for steel has been well documented and there had been reports in the press of government plans to cut some of the older, more polluting capacity and to reduce annual production by around 150 million tonnes in five years.  There has been very little evidence of any progress being made in this regard, however, as although Chinese production fell by 3% year on year in the first quarter, the traditionally strong month of March actually saw production increase by 1% to 70.7 million tonnes which, incredibly, represents the second highest ever monthly production figure from the country.

This increase in production in a market that is struggling with sluggish demand had the now familiar effect on exports.  Shipments in March were a staggering 30% above those of March 2015. Although it should be noted that February and March last year suffered temporary declines due to the government’s decision to remove tax rebates from exports of steel containing boron.  Nevertheless the figure of 9.9 million tonnes is still substantial, has been bettered only four times in history and was enough to give a quarterly export figure 8% above that of Q1 last year.

So where is all of this extra Chinese steel going?  It is clear that it is not being shipped to the US as that country has moved quickly to protect its domestic industry against the threat of cheap Chinese steel products with swift anti-dumping tariffs being enacted.  This has led to a 71% collapse in Chinese exports to the USA in Q1 and we have also seen a 66% fall in shipments to Brazil as demand for steel in that country has suffered.  The largest increases in tonnage terms have been to Thailand, Vietnam and the Indian subcontinent with exports to India, Pakistan and Bangladesh all increasing considerably.

We have also seen an increase in exports to Turkey, which were up 56% year on year, and a growth in shipments to the EU, which increased by 22% with Italy suffering the brunt of the effects with tonnage that nearly doubled in the quarter.  In addition, there has been a three-fold increase in Chinese exports to Algeria, itself an important market for Italian steel producers.

This growth in Chinese production and exports has taken the industry by surprise somewhat, with many sources expecting a decline in Chinese output rather than a large tonnage of surplus Chinese production making its way onto the global market.  This, combined with the news that some 41 blast furnaces have been brought back on line in the country and the fact that there remains considerable overcapacity in the market is concerning and calls into question the sustainability of the recent global price increases seen in the industry.

Chinese CSP Shoots Up in March