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China's steel exports will be slashed by a trade war, causing a surplus at home

Analysts and traders say that China's steel imports will plummet in the second quarter. This could exacerbate an existing supply glut in China, while the trade war, and the wave of protectionism it has spawned, are crimping export markets.

Eight analysts and traders predict that second-quarter shipments by the world's biggest steel producer and exporter will fall up to a fivefold from the first quarter. They also expect the export situation to worsen later in the year.

This would also mean that second quarter 2024 shipments will be lower than they were in 2024.

The steel exports are being hit twice by Washington's tariffs, which have choked off the transshipment business, in which third countries resell Chinese Steel to the U.S. Top customers such as South Korea and Vietnam also impose their own duty to prevent steel from then being rerouted to their markets and dumping.

A Chinese steel trader, who spoke under condition of anonymity because he was not authorized to speak with the media, said: "It is certain that total exports in Q2 will decline."

"One could look to the Middle East, Africa, and South America for alternative outlets. But the problem is that no country has such a large capacity."

China's increasing steel exports helped offset the weak demand in the property sector. Any decline would redirect steel home, lowering prices, eroding profitability, and reducing steelmakers' appetite for inputs such as iron ore.

The first-quarter exports reached their highest level since 2016, as mills raced to ship steel out of the United States before the rumoured tariffs became official.

The trade war between Washington, D.C. and Beijing has unleashed a wave of protectionist sentiment that has shocked many.

Last month, the Chairman of China’s largest listed steelmaker Baosteel said that exports in this sector were under "unprecedented pressure" and more steel being left at home will intensify oversupply.

According to a survey conducted by Mysteel in April, overseas orders for one of China's largest exporters fell between 20 and 30 percent last month as compared to the previous month.

Ge Xin said that there are concerns about the impact of the trade war on products that heavily rely on steel like electric vehicles and home appliances. This could weaken the demand for steel outside the real estate sector.

It takes time for this impact to filter through the steel industry upstream. This is likely reflected by the data from the second quarter, when the home demand was seasonally lower, thereby aggravating the glut of supply.

(source: Reuters)