Steel Products

Will Chinese Really Cut Production This Time?

Written by Tim Triplett

The market’s obsessive speculation over Section 232 and possible new tariffs on steel imports has caused many to miss the big story, said Timna Tanners, research analyst for Bank of America Merrill Lynch. “Stop worrying about what’s happening in Washington and pay more attention to what’s happening in China,” she told the sellout crowd at Steel Market Update’s Steel Summit Conference last week in Atlanta. “The Chinese are beginning to display some supply discipline that eclipses anything we could talk about in the U.S.”

The news out of China is unusually good. Chinese steel exports have declined by 30 percent from 2016 peaks. Chinese inventories are low and domestic consumption has topped expectations. Strong prices in China are giving support to stronger global and U.S. prices. And it looks as if the Chinese really mean business this time when it comes to idling inefficient steel capacity. Mill closures in China have cut an estimated 40 million metric tons from the nation’s steelmaking capacity, Tanners said, describing them as “game-changing scenarios.”

“We’ve been hearing for 15 years that the Chinese were going to curtail supply, but it seems like it’s actually starting to happen,” she said.

Fellow panelist at the SMU summit, economist John Anton of IHS Markit, expressed some skepticism. Chinese steel companies have shut facilities down in the past only to bring production back online as soon as steel prices improved. “I don’t have faith China will keep those mills closed. If they do, that will be the single biggest change that could be made to the global steel industry. Someday it will happen. I’m just not sure that day is here yet.”

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