International Steel Mills

How Long Before the Chinese Steel Bubble Burst?

Written by John Packard

Steel Market Update received trade data from one of our sources regarding Chinese imports and exports of various products including steel.  The number that the world markets are discussing is steel exports which totaled 112,400,000 metric tons for calendar year 2015 (123,900,000 net tons).

These are big numbers. The U.S. domestic steel industry, which is the third largest steel producing country in the world, is only capable of producing 130,000,000 million net tons. In 2015 the U.S. mills actually produced 86,912,023 net tons according to the American Iron & Steel Institute (AISI).

So, essentially the Chinese are exporting as much steel to the rest of the world as the U.S. could produce if it were operating at full capacity. As that Chinese steel hits the shores of Europe, South America, Asia, the Middle East, or elsewhere, it replaces domestic production in those countries. Each country and company within that country is going to try to run their facilities as efficiently as possible. One major component of being efficient is running as close to full as possible. So, instead of closing down facilities the first inclination is to export steel to other countries and since the United States has the highest selling prices in the world….

So, the China problem which is being dealt with through antidumping and countervailing duty suits here in the United States will continue to impact the U.S. mills by replacing production elsewhere and then that replaced production tends to find its way to other areas of the world, including the United States.

The world is in a battle to stop the Chinese from flooding the world with their excess steel. Europe, Mexico, South America and elsewhere around the globe there are dumping suits being filed and complaints against the over-capacity in China.

The Chinese, in response, have promised (again) to remove 150 million metric tons within the next 5 years. One small slow step for the Chinese who are reportedly 300 to 400 million metric tons (330-440 million net tons – or about 3 to 4 times the size of the U.S. steelmaking capacity) out of whack with what their actual steel needs may actually be in reality.

The Chinese mills shipped 2,161,098 metric tons (2.33 million net tons) to the United States during calendar year 2015 (receipts into the U.S.). Due to the dumping suits, Chinese flat rolled shipments are almost at zero tons as the year came to a close.

Will the Chinese “steel bubble” totally burst in 2016 and into 2017? And, if so, what does that mean for the rest of the world?

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