China’s steel exports just fell for a second straight month, and Australia’s largest bank expects that trend to continue in the second half of the year.
The recent declines mark a turnaround from the first six months of 2018, when net steel exports were trending higher.
Exports continued to rise even after the US implemented a 25% tariff on March 23.
But trade fears continue to keep investors on edge, as markets await an announcement by the Trump administration about additional tariffs an another $US200 billion worth of Chinese exports.
Commonwealth Bank commodities analyst Vivek Dhar said China’s export volumes were supported by robust levels of local production, which were rising by 6.3% year-on-year, according to official Chinese data.
However, he reckons those numbers are a bit too good to be true.
“We do believe that China’s steel output has expanded, but likely less than official data suggests, reflecting attractive steel mill margins,” Dhar said.
Steady production has helped bolster demand for steel, which in turn has provided support for iron ore prices this year.
But ongoing environmental restrictions in Northern China have seen steel production growth fall in recent months, after it peaked in May.
However, Dhar doesn’t think reduced production has been the catalyst for falling exports.
Rather, he pointed to a complex global trade picture “driven by protectionist measures and competition from countries like Russia”.
Dhar also highlighted a secondary effect of US protectionist measures, after the Trump administration also levied a 25% tariff on Vietnamese steel exports.
“Those duties effectively stop the practice of re-exporting steel from Vietnam that originated in China,” Dhar said.
Vietnam has already said local companies are likely to stop buying Chinese steel as a result.
“In fact, China’s steel exports to Vietnam and South Korea, China’s two largest steel export markets, have dropped by double digit growth rates over the last year.”
As a result, China has had to look to new markets such as Africa and South America. While exports to countries such as Nigeria have picked up, it won’t be enough to offset the falls in existing markets.