A magnifying glass is on steel, particularly Chinese steel.
The U.S. Department of Commerce’s Section 232 steel and stainless steel investigation appears to be under the watchful eye of European leaders.
In that vein, newly released Chinese data has not gone unnoticed.
The EU has expressed its concerns about the Section 232 investigation’s outcome. Cecilia Malmström, EU trade commissioner, said during a POLITICO Playbook Breakfast event in Brussels, “We should be very, very clear …. this is hitting the European Union very, very hard.”
The Trump administration’s concerns focus mainly on Chinese overcapacity and market distortions. Europe claims to share these concerns and is currently evaluating the possible effects that the Section 232 investigation will have.
Due to the previous anti-dumping measures imposed on the steel industry, China will not suffer the imposed steel tariffs by the Trump administration under the Section 232 investigation — but Europe will because its product exports to the U.S. will also be harmed.
China, of course, drives the global steel market. Chinese steel prices lead global steel price direction. U.S. imports of iron and steel products amounted to $33.61 billion during 2016, according to the United Nations COMTRADE database on international trade. From the total value of these imports, 36% comes directly from China.
Therefore, changes in exports from China serve as a market signal to changes to U.S. steel prices.
A recent Reuters article highlighted the sharp reduction of Chinese steel exports.
Chinese steel capacity closures may have led to the drop in exports. Even real capacity closures have been occurring, which may be leading to the decline in exports.
Curiously enough, production itself has not decreased. Capacity reductions are, however, increasing steel-production profitability. Moreover, steel demand within China appears to have increased, also aiding profitability.
Considering the effect of all the variables analyzed, steel prices will still remain range-bound until uncertainties give way to clarity. Steel buyers should watch the market closely.