It is reported that China is ramping up its global exports of cheap steel sometimes at a loss as bulging stocks of the alloy give way to a worsening domestic demand picture for the commodity consuming giant.

Slowing construction and industrial activity has hit Chinese steel demand and prices hard in the past few weeks prompting market participants to export more aggressively than ever even to markets such as the Middle East and North Africa where it doesn’t usually sell.

The country steel industry association said major steel products in China are being sold below cost following a market slump that has lasted more than four months.

A Russian steel trader said “The Chinese have been offering everywhere in the last three to four weeks in whatever market they can reach and they can reach almost everywhere because their steel price has dropped dramatically.”

Trader said “They are offering to Latin America, they are offering to Africa, they are offering to the Middle East and they are offering to Iran and even to a part of Russia. Everywhere.”

Traders said Chinese steel exports to North Africa and the Middle East, were at a discount of USD 40 to USD 50 per tonne against Turkish and Russian steel up from a discount of USD 20 to USD 30 about two weeks ago. The trader said “It will take months for China to implement the announced programs.”

Mr Gordon Moffat director of Eurofer the European steel producers association said “China growth model is driven by the need to create jobs in order to avoid social unrest, so when they slow down domestically and they begin to export and that creates trade tensions. I think we are entering that stage.”

Chinese steel output often subsidized by the government has grown much quicker than demand over the last few years.

A China based trader whose focus is on exports to Southeast Asia said “Demand in the region is not picking up largely but we managed to lower prices to attract bookings, though our profits are extremely weak.”

The Russian trader said “Of course this is putting pressure on prices and now domestic producers are trying to adapt to develop defensive strategies and see how they can reduce the impact of these Chinese prices.”

The trader said “Some mills in Europe are still okay because they produce higher end steel but the Russians can’t survive like this. Traders said Europe is a more consolidated export market for China, but in the last few weeks Chinese offers to Europe have also been more attractive.”

A European trader said “We have been buying more Chinese products and I have heard a big Italian buyer has just bought 50,000 tonnes of hot rolled coil out of China.”

The trader said the long lead times had put some customers off and the Chinese quality is not acceptable for all uses but the competitive prices were certainly attracting more buyers.

Traders said the US is better protected from the Chinese steel flood thanks to anti dumping duties. Nevertheless, more bookings of other Chinese steel products have taken place with prices up to USD 100 cheaper than domestic ones.

Analysts and traders struggle to predict when steel prices will turn around but they agree steep Chinese production cuts will be needed for this to happen.

Source - Theglobeandmail

(www.steelguru.com)