Chinese Steel Exports Are Booming But Here’s Why That Won’t Last

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(Bloomberg) — China’s steel exports have risen significantly. History suggests it cannot continue.

Steelmakers in the world’s largest producer rely heavily on foreign sales to absorb the surplus resulting from the country’s years-long real estate crisis. But they face accusations of dumping of the market by importers, and protectionist Donald Trump will soon return to the White House. The escalation of tensions is beginning to resemble the last trade crisis the industry experienced nearly a decade ago.

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Unless Beijing rips up the current playbook and decides to re-inflate the housing market or splurge on infrastructure, steel consumption in China will decline in the long term. But factories have barely reduced their production to match this reality. The result is near-record exports. More than 11 million tons were shipped last month, the highest level in nine years.

Investors fear that Trump’s re-election could lead to another trade war. Although China does not sell much bullion to the United States directly, protectionist policies could spread across global steel markets and stifle global trade. Analysts at ANZ Group Holdings Ltd believe… Chinese factories may try to “counter” any increase in tariffs by boosting exports further over the next few months, according to a note from the bank last week.

Here are five charts that show how Chinese exports could be hurtling towards a tipping point.

History lesson

Chinese steel has a history of sparking trade tensions. Importing countries have opened 25 anti-dumping investigations so far this year, the most since 2016, according to the Chinese Ministry of Commerce. If that period is any guide, expect sales to decline sharply.

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“Chinese steel exports may start to decline by the end of 2026 as more trading partners strengthen anti-dumping export controls and overall steel production declines,” said Bloomberg Intelligence analyst Michelle Leung.

Developing economies

China mostly exports its steel production to nearby developing economies that still need to build large-scale infrastructure. Southeast Asian, South Asian and Middle Eastern countries saw the largest increase in imports this year and many of them are partners in Beijing’s Belt and Road Initiative.

But even those countries are sinking and trade barriers are being raised in return. This causes problems for Chinese steelmakers because it indicates how saturated the market is. It only becomes more expensive for factories if they have to ship further afield.

Vietnamese boom

China’s largest overseas market is an example of this. “When Chinese rolled steel coil exporters look at the world, they don’t worry so much about Trump, they worry about Vietnam,” said Tomas Gutierrez, an analyst at Callanish Commodities Ltd.

It is one of the countries that towed the drawbridge after it was flooded with Chinese steel. But traders in Vietnam have also responded by increasing exports to remove metal accumulating there, exacerbating a global glut in the steel market’s version of “whack-a-mole.”

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Threat to neighbors

Other neighbors aren’t happy either. Exports from Japan and South Korea have stopped in the face of Chinese competition, while their domestic markets are also threatened by the influx of steel.

Japan wants to expand anti-dumping measures to control Chinese steel being routed through third countries, while South Korea has launched an investigation into imports of stainless steel sheets as it lodges complaints about products made in China being sold below their market value.

“Rising affordable Chinese steel prices have created challenges for manufacturers in Japan and South Korea, shrinking their market share and profit margins,” said Martina Reber, research director at Pala Investments Ltd.

Size over value

Exports have been crucial in keeping Chinese mills afloat because there is not enough demand domestically to maintain a billion tons of production annually. Now, cheap Chinese steel is taking away the entire market. Rivals, from European steel giant ArcelorMittal to Japan’s Nippon Steel, have called for tougher measures to stop the floods.

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Chinese steel products are typically 10% to 20% less expensive than those produced by other major producing countries such as Japan and South Korea, according to Bala’s Reber. But there are worrying signs in some destinations such as India and the Philippines, where the value of Chinese exports has already fallen even as tonnages have risen.

More broadly, a volume-over-value strategy will be problematic for Chinese factories if exports cannot keep up the pace.

On the wire

Xi Jinping used his recent meeting with Joe Biden to send a clear message to Donald Trump: China wants to be a friend, but is ready to fight if necessary.

Aluminum jumped on Friday after China said it would eliminate a tax break that helped fuel a decades-long boom in exports and protect an industry vulnerable to excess capacity.

Unsold Angolan oil in December indicates weak demand from China.

Week diary

(All times are in Beijing unless noted.)

Monday 18 November:

• China’s October production data for basic metals and petroleum products
• Second batch of Chinese trade data for October, including agricultural imports; LNG and pipeline gas imports; Collapse of oil products trade; exports of alumina, copper and rare earth products; Imports of bauxite, steel and aluminum products
• China International Lithium Conference in Chengdu, Sichuan, Day 1
• China International Photovoltaics and Storage Conference in Chengdu, Sichuan, Day 2

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Tuesday 19 November:

• China International Lithium Conference in Chengdu, Sichuan, Day 2
• China International Photovoltaics and Storage Conference in Chengdu, Sichuan, Day 3

Wednesday 20 November:

• China sets base interest rates on monthly loans at 09:00
• The third batch of Chinese trade data for October, including country breakdowns for energy and commodities
• CCTD weekly online briefing on Chinese coal, at 15:00
• China Auto Charging and Battery Changing Conference in Taiyuan, Shanxi, Day 1
• China International Lithium Conference in Chengdu, Sichuan, last day
• China International Photovoltaics and Storage Conference in Chengdu, Sichuan, last day

Thursday 21 November:

• China Auto Charging and Battery Changing Conference in Taiyuan, Shanxi, Day 2

Friday 22 November:

• Weekly iron ore port stocks in China
• Weekly Commodity Stocks on the Shanghai Stock Exchange, ~15:00
• China Auto Charging and Battery Changing Conference in Taiyuan, Shanxi, last day

-With assistance from Grace Sihomping, Ditas Lopez, Kwok Leung Chan, James Major, and Martin Ritchie.

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