Demand for Chinese steel is plummeting from abroad, as seen in the chart below.
From the Commonwealth Bank, it shows Chinese net steel exports over the past six years, including the ugly decline that saw it hit the lowest level since February 2014 in September.
Over the past year, net exports have fallen by a whopping 49%, largely reflecting trade barriers put in place from the likes of the US, EU and India in an attempt to protect their steel industries from cheap Chinese imports.
The sharp decline comes despite an increase in Chinese steel production over the same period, underlining the strength in domestic demand from within China at present.
“Stronger Chinese steel production, prompted by rising steel margins, have helped lift Chinese crude steel output by around 6% from January to August,” says Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank.
“End-user demand remains resilient as Chinese stimulus continues to flow through China’s commodity intensive sectors. China’s manufacturing sector is still expanding, while infrastructure investment continues to grow strongly.
“We expect both factors will remain strong drivers of Chinese steel demand.”
Looking ahead, Dhar says that Chinese steel demand is only likely to lift by around 2% this year, which, alongside falling Chinese steel exports, should pressure prices in the period ahead.
“Steel prices should fall from current levels by year end, as the supply additions prove too much for actual demand,’ he says.
Dhar says the main risk to this view comes from looming steel production cuts in China that are expected to be fully implemented by mid-November, temporarily limiting potential output as the government seeks to improve air quality in northern provinces.