China’s Export Crutch

Customs data show China exported 11.18 Mt of steel products in October last year, the highest in a month since September 2015. Whilst October represented a peak, Chinese steel exports have generally been on a sharp upward trend since the beginning of 2020, with volumes for 2024 up 21.8% y-o-y at 111.1 Mt.

The strength of these exports has been driven by a push from producers rather than a pull from consumers. Our assessment of apparent consumption in China over Jan-Nov 2024 (based on official data on production, imports and exports and CISA data for inventory changes) shows a 6.5% y-o-y fall over the period, whilst production dropped by a much more modest 2.9%. It seems the difficulties in temporary idling blast furnaces has driven producers to export, often at a loss (current estimates suggest only around 50% of mills are profitable), whilst they wait for domestic demand conditions to improve.

Given the inauguration of President Elect Trump and the accompanying dark clouds of tariffs and trade wars, the future for Chinese steel exports looks less rosy. There are essentially two main forces driving the outlook for Chinese steel exports in opposite directions: the possibility (which seems increasingly likely) of US tariffs; and the devaluing of the Chinese currency. We would expect that tariffs, and a potential subsequent wave of protectionist policies around the world, will drag on Chinese steel exports as well as steel trade from all other exporting countries, but in the short term a weaker renminbi may support exports.

The yuan reached a local peak on 11th October at Rmb7.07 per USD and since has dropped to Rmb7.25, a decline of 3.2%. This should be caveated by the fact that a significant driver of this relative weakness has been the strength of the dollar. Indeed, the euro has fallen by 4.9% against the dollar over the same period, and the pound by 5.0%. Nevertheless, the decline in the renminbi is significant in that it represents a continuation of a longer term declining trend which started in early 2022 (current value down 12.1% from that peak), and it also indicates either an unwillingness or inability of the Chinese government to stop the slide. Whatever the cause of the decline there seems to be mounting pressure, with some analysts reporting expectations of “between Rmb8 and Rmb8.1 by the middle of [2025]”. A fall to these levels would represent a decline in value of 20-21% from the 2022 peak. A weaker yuan means cheaper Chinese steel, adding to the attractiveness of the already cheap product.

The US imports very little steel from China directly (just 1.7% of total imports in 2024) and the fall in the yuan is small in comparison to the huge 60% tariffs Trump is proposing on Chinese goods. However, we expect that increased US import tariffs in general will reduce demand for Chinese steel globally, particularly in countries that import Chinese steel to make products for export to the US. Vietnam, for example, has been the focus of Trump’s rhetoric in the past – Vietnam was the second largest importer of Chinese steel in 2024 (10% of total) after Indonesia (16% of total).

Without the buffer of strong exports the Chinese steel industry may increase stockpiles, increase domestic consumption (although stimulus seems to have had little effect on this so far), or reduce production.

By William Tooth, Senior Dry Bulk Analyst, Research, SSY