Chinese Steel Production

China is churning out steel in spite of a slowdown in domestic demand with its surplus powering rising exports. China’s steel exports rose by almost 20% in 2015 to a record 112.4 mmt. To put that in perspective that is enough to meet demand in Germany and Japan for a year and still leave almost 9 mmt to spare.

Such a level of exports is untenable in the medium term. Global demand is flat and trade tensions are rising. Exports will have to be reduced this year either voluntarily or by being shut out of mature markets by anti-dumping actions.

Beijing knows this and has been trying to encourage steel producers to close excess capacity via a range of means but largely under the umbrella of environmental considerations. Steel production is a major source of pollution in China and with the country producing more than it needs — both steel and pollution — there is a strong case for a more forceful approach in the months ahead.

The iron ore price though has continued its downward trend line. It isn’t about demand, it’s about supply and supply has grown relentlessly in tandem with the major producers’ ability to drive down their costs to remain profitable.