Yahoo Finance Chinese Steel Exports Continue to Surge despite Production Cuts
How Did the Steel Industry Fare in July amid Chinese Slowdown?
Chinese steel exports
In the previous parts of this series, we noted that Chinese steel production fell at a steep pace in July. Meanwhile, steel demand indicators point to a much bigger slowdown in China (FXI). The end result is a demand and supply mismatch and a veritable tsunami of Chinese steel flooding international markets.
The chart above shows the recent trend in Chinese steel exports. In July, Chinese steel exports rose 20% year-over-year (or YoY). They have increased 26% YoY in the first seven months of the current year.
Steel exports rise on a high baseline year
Chinese steel exports are increasing over a high baseline year. Last year, China exported a record 93 million tons of steel. Higher Chinese steel exports have already created a glut of steel in international markets, depressing steel prices.
Weaker yuan
China allowed its currency to depreciate earlier this month. China’s dismal trade data, which were released on August 8, likely prompted the currency devaluation move. China’s exports fell 8.3% YoY in July, which was worse than the average analyst estimates. China’s exports have fallen because of lower demand from its major trading partners, including Europe and Japan. A weaker currency makes China’s exports more competitive in the global markets.
From the perspective of steel companies including Nucor (NUE), Steel Dynamics (STLD), and Commercial Metals Company (CMC), China’s steel exports could increase further in the coming months on the back of a favorable currency. Nucor currently forms 2.73% of the Materials Select Sector SPDR ETF (XLB).
We’ll look at the recent trend in steel prices in the next part of this series.
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