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Analysis: China’s steel sector has bigger concerns than Biden’s tariff hike

By Amy Lv and Tony Munroe

BEIJING/SINGAPORE (Reuters) – U.S. President Joe Biden’s push to triple tariffs on Chinese steel imports is a largely symbolic blow to an industry facing wider concerns about faltering local demand and the threat of an even more stronger backlash against rising Chinese exports.

Steel consumption in the world’s second-largest economy is poised to contract again this year as a protracted real estate crisis has yet to find a bottom and infrastructure demand growth slows after 12 indebted regions were ordered to stop certain projects.

The state-backed China Metallurgical Industry Planning and Research Institute (MPI) forecasts a 1.7% decline in Chinese steel demand this year, after a 3.3% decline in 2023.

While Chinese steel exports rose by more than a third last year to the highest level since 2016 at 90.26 million tons, about 9% of total crude steel production, only 598,000 tons of shipments went to the United States. That was 8.2% less than volumes shipped to the US last year and less than 1% of China’s total steel exports worth $85 billion in 2023.

China, the world’s largest producer and exporter of steel, is only the seventh-largest transporter of steel to the US, softening the blow of Biden’s proposal to increase tariffs imposed by his predecessor Donald Trump on certain steel and aluminum products up to 25%.

“We don’t think there will be a big impact as the main destinations for Chinese steel exports are Japan, South Korea and Middle Eastern countries,” said an analyst at a China-based steel trader who declined to be named to be because he wasn’t. authorized to speak to the media.

Spurred by low local prices, Chinese steelmakers and traders are on track to match or exceed last year’s exports. Domestic information provider Lange Steel has raised its forecast to more than 100 million tonnes for 2024 after deliveries exceeded expectations in March.

China’s cheap steel products are also drawing complaints from outside the United States.

Late last year, India imposed anti-dumping duties on some Chinese steel imports, while Mexico announced a tariff of almost 80%. Thailand has launched an investigation into imports of Chinese rolled steel, and Brazilian steelmakers are urging their government to impose a 25% tariff.

A report by a Chinese state-backed research firm identified a total of 112 rulings by countries on anti-dumping and anti-subsidy measures on Chinese steel products in 2023, an increase of about 20 from 2022.

“We expect more trade frictions this year,” said David Cachot, research director at consultancy Wood Mackenzie.

DOMESTIC DOLDRUMS

Beijing’s latest support for the sector, a plan to support equipment upgrades in the industrial and agricultural sectors and speed up consumer replacement of cars and home appliances, is unlikely to fully offset reduced steel consumption in the real estate sector.

Consultancy CRU Group predicts that the policy will create an additional demand of 8 to 9 million tons of steel over the next four years. By comparison, the state metallurgical institute expects construction demand to fall by 20 million tons, or 4%, this year.

Some analysts said they expect infrastructure-led steel consumption to grow just 1% to 2% this year, compared with previous expectations of 7% to 8%, after Beijing’s demand that a dozen regional governments adopt some of the state-funded infrastructure projects would delay or halt other regions to follow suit.

In recent years, Beijing has imposed caps on steel production, both to reduce supply and to cut carbon emissions. Industry watchers and insiders say further production cuts are needed to stem overcapacity.

“The steel industry is facing a striking contradiction: strong supply power and declining demand,” Luo Tiejun, vice chairman of the state-backed China Iron and Steel Association (CISA), told an industry event in South Korea this week -China.

“The key to tackling this is for leading manufacturers to take the lead in curbing the pace of production based on demand,” Luo said, according to the group’s WeChat account.

EXPORT TO RESCUE?

In March, China’s steel exports rose to 9.89 million tonnes, the highest in a month since July 2016, bringing the first quarter total to 25.8 million tonnes, while total exports in the world’s second-largest economy shrank sharply.

Worth $20.3 billion, China’s steel exports averaged $789 per tonne in the first quarter, far above local prices of an average of 4,145 yuan ($572.30), according to data from customs and consultancy Mysteel.

A prolonged weaker yuan against the US dollar, partly due to delayed interest rate cuts by the US Federal Reserve, is also expected to ease steel exports.

But exports are vulnerable to uncertainty arising not only from trade frictions, but also from increasing overseas supply and Beijing’s ability to impose production cuts.

To be fair, global steel demand is expected to rise 1.7% to 1.793 billion tonnes this year, according to the World Steel Association.

“Although some countries are building their own capacity to meet the increase in local demand, this cannot meet demand quickly enough, meaning there is still room for steel from China,” said Kevin Bai, a Beijing-based established analyst at CRU Group. .

($1 = 7.2426 yuan)

(Reporting by Amy Lv in Beijing and Tony Munroe in Singapore; Editing by Tom Hogue)