Chinese Steel Balance of Trade Moderates in June, But Net Exports are Up 18% for the 1H 2011. According to just-released data, net Chinese steel exports were down 1% in June, to 3.19 million tonnes (mt), down from May’s level of 3.48mt. We are surprised that exports are reported down for the month, particularly given Friday’s release by the China Iron and Steel Association (CISA) for late June production, which posted an estimated 2.018mt/day, a new record and the first time Chinese steel production has ever breached the 2mtpd mark. Year-to-date, net exports remain up some 18% over 2010.
China Continues to “Turn Gold into Straw,” Beijing Stepping In? Given the current near-peak levels of iron ore and met coal prices, we believe that most Chinese steelmakers have tipped into the loss-producing column, and while there is talk of production cuts, we are seeing the opposite in the marketplace, despite declining prices in the region and stable raw material costs.
Chinese Imports into the US at 2-Year Highs. While net Chinese exports remain at post-recession record levels, we are also seeing a meaningful pickup in Chinese steel coming into the United States. For June, Chinese steel imports into the United States rose 26.1% increase in June, to the highest level in over two years; Chinese steel imports into the US have risen now for four straight months.
Outlook. With slowing of the Chinese economy hitting the consumer goods sector more than the construction sector, we continue to see further weakness for flat products in China. With improving inventories of longs and better demand, we hope that we are past the worse of the pricing decline for construction steels. Even so, it’s fairly clear that Chinese export pricing has continued to deteriorate, and we hope to hear more and more anecdotal support that Chinese steel mills are choosing to cut production rather than continue to drop prices in the export market.