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Summary

According to a report on Bloomberg overnight; preliminary December Chinese trade data. Finished steel exports look to have jumped 17% in the month to the highest level in 15 months. The trend is surprising to the extent that it would indicate that Chinese production is rising again, bucking the recent trend as well as Beijing’s ongoing attempts to rein in production.

We remain bullish on global steel prospects and equities, but continue to believe that the risk of Chinese oversupply remains profound.

At over 50% of global production China, the risk of excessive production in the region spilling out into the West remains profound. So far we’ve seen prices in China rising faster than in the rest of the world, and the ramp-up in exports most probably is at least part of the explanation.

The final data will be released sometime in the next few days so we may have additional comments.

Background

According to a report on Bloomberg, preliminary data released by Chinese customs overnight disclosed that December exports of finished steel surged 17% to 3.34mt from November, the highest level since October 2008. Finished steel imports rose from 1.29mt to 1.48mt, so that net exports in the month rose to 1.86mt, up nearly 20% for the highest level for the year.

We’re disappointed to see the ongoing monthly increases in exports out of China. To the extent that the Chinese steel industry is supposedly running flat-out due to strength in China’s stimulus, the ramp-up of exports doesn’t make a great deal of sense to us.

What’s even more disconcerting is that the average price/ton of exported steel from China in December dropped 1.5% from $768/t to $757/t, bucking the trend of rising prices in the region. China saw the opposite trend in their imported steel, with prices rising some 0.6% from November to December.

While we have yet to see much damage in the global steel market overall from this increase in Chinese exports, we suspect that the trend may actually worsen in coming months, as anticipated price hikes have led to production increases in January and this steel may have to be siphoned off into the West.

Disclosure: NUE, RS, CLF

Source: Chinese Steel Exports Rise Again