November 6, 2024

Steel Market Summary - International

Under-Performing Global Market Blames Cheap Chinese Exports  

It is commonplace to hold someone else responsible for a bad outcome in which you played a crucial role. Take the Chinese, for example. At present, they are being internationally condemned for “flooding the market” with cheap exports; for dumping state-subsidised products all over the world and thus “contaminating” the free market. Previously profitable companies in the West and Asia are seeing their margins shrink – even disappear. It´s outrageous! Those self-serving Chinese should be brought into line: and fast. An alternative viewpoint, however, is that Chinese steel manufacturers – faced with depleted domestic demand – have quite reasonably turned to the international market in a desperate bid to remain solvent. A sharp drop-off in steel consumption during persistent property downturn and a weaker-than-expected infrastructure sector in China have hammered steel producers. The response has been no different to what manufacturers elsewhere would do. Unwilling to reduce production levels,

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steel mills have sought alternative markets. The result? Steel exports from China have risen by more than 20% so far this calendar year and are presently at an eight-year high. However, before examining the consequences of that increase, it´s worth noting the present viability of the Chinese steel industry. According to government statistics, in the nine months from January to September this year, the cumulative losses in the world’s biggest steel industry had swelled to US $5 billion. In September, it was calculated that only 5% of Chinese steel mills were making a profit. Recent figures for Baoshan Iron & Steel, known as Baosteel, are indicative of the impact of falling domestic demand. In a filing to the Shanghai Stock Exchange, Baosteel reported a nearly 65% plunge in its third-quarter net profit, undermined by a fall in steel prices. Baosteel is a subsidiary of the state-owned China Baowu Steel Group, the world’s largest steelmaker. In such circumstances, what company wouldn´t seek alternative markets?

But the international response has been far from welcoming. India’s steelmakers have called on their government to double tariffs to 15% on steel imports from China to curb what it calls a surge in cheaper steel shipments. The news agency Reuters says the Indian Steel Association (ISA) informed India´s Minister of Finance that: “The industry is concerned about the surge in imports of steel into India at predatory prices and the threat posed by China’s downturn.”  The ISA represents major steel producers such as JSW Steel, Tata Steel and ArcelorMittal Nippon Steel India and is no doubt acting in its own best interests. Meanwhile, in September the United States announced it would increase tariffs to 25% on certain steel and aluminium imports from China. In Australia, BlueScope Steel has cut its earnings guidance for the remainder of this year, citing “the continued softness in East Asian spreads off the back of record levels of Chinese steel exports.”

The European Steel Association (EUROFER), in its latest Economic and Steel Market Outlook, takes a similar line. Its Director General, Axel Eggert says: “The European steel market faces an increasingly challenging outlook, driven by a combination of low steel demand, a downturn in steel-using sectors, and persistently high import shares (which rose to 28% in the second quarter of 2024). These factors, combined with a weak overall economic forecast, rising geopolitical tensions, and higher energy costs for the EU compared to other major economic regions, are further deepening the downward trend observed in recent quarters.” There are a number of self-inflicted wounds in that list of negative influences; however, Mr Eggert has been careful to draw full attention to Chinese imports.

According to the Outlook, apparent steel consumption will not recover by 1.4% in 2024 as previously projected. Instead, it is expected to contract by a further 1.8%. Similarly, the outlook for steel-using sectors’ output has worsened for 2024 (-2.7%, down from -1.6%). The report says the evolution of steel demand remains subject to high uncertainty and, even with a modest recovery projected in 2025 (+3.8%), consumption volumes are likely to remain well below pre-pandemic levels. Despite three recent interest rate cuts by the European Central Bank (ECB), high economic uncertainty is likely to persist.

“Such data further confirm the urgent need for action at EU level to preserve sustainable steel production and quality jobs in Europe while supporting decarbonisation investments,” Eggert says. “We must urgently address global overcapacity and unfair trade practices, high energy prices and access to ferrous scrap alongside establishing lead markets for green steel made in Europe. We call on Members of the European Parliament and the incoming European Commission to deliver a robust European Steel Action Plan as a priority,” he added.

EUROFER represents the entirety of steel production in the European Union. Its members are steel companies and national steel federations. Additionally, the major steel companies and national steel federation of Turkey, Ukraine and the United Kingdom are associate members. The European steel industry has a turnover of around €191 billion and directly employs around 303,000 people, producing on average 140 million metric tonnes of steel per year. More than 500 steel production sites across 22 EU member states provide direct and indirect employment to millions more European citizens.