Analysis-China steel exports poised for record high, risking further tariff backlash

China's steel exports are projected to reach a record 115-120 million metric tons this year, driven by domestic oversupply and a strategic push to export ahead of rising global protectionism. This surge is intensifying trade friction, evidenced by 54 new tariffs against Chinese steel in 2024, and is forcing Chinese producers to pivot to emerging markets and increase shipments of lower-value, semi-finished products, resulting in a 1% decline in dollar value despite a 10% volume increase. Analysts anticipate exports will peak this year, retreating to 100-105 million tons by 2026 due to market saturation and escalating trade barriers.

Analysis

China's steel exports are projected to reach a record high of 115-120 million metric tons this year, defying earlier analyst expectations of a decline. This surge is driven by a combination of significant domestic oversupply, following the peak in consumption in 2020 and the subsequent property market collapse, and a strategic effort by producers to maximize shipments before anticipated trade barriers intensify. The aggressive export push is provoking a strong protectionist reaction, with 54 new tariffs and trade barriers initiated against Chinese steel in 2024 alone—more than the total from 2019 to 2023. In response, Chinese producers, including Baoshan Iron & Steel (Baosteel), are pivoting to emerging markets in the Middle East and Central Asia and shifting their product mix towards lower-value, semi-finished goods like steel billets, which saw exports triple in the first seven months. This strategic shift has led to a notable divergence between volume and value; while total export volume increased 10% in the first eight months, the corresponding dollar value fell by 1%, indicating significant margin pressure. Analysts now broadly concur that this export level is unsustainable, forecasting a peak this year followed by a retreat to 100-105 million tons by 2026 due to market saturation and escalating trade friction.

Key Decisions for Investors

• The surge in low-value Chinese steel exports indicates significant global oversupply, suggesting continued downward pressure on global steel prices and potential margin erosion for international competitors.
• For investors in Baoshan Iron & Steel (600019.SS), while the company is demonstrating operational agility by redirecting sales, its pivot to lower-value products signals a risk of margin compression that should be scrutinized in future earnings reports.
• Monitor for two key negative catalysts that could cap export volumes: the imposition of further tariffs by major importers like the European Union, and any policy move by the Chinese government to implement export taxes on lower-grade steel.
• The redirection of trade flows away from traditional partners like Vietnam and South Korea towards the Middle East and North Africa presents a potential headwind for steel producers and logistics firms heavily exposed to the former routes.