Since the beginning of the year, a sharp decline in domestic demand has forced Chinese steel manufacturers to ramp up exports to seek profits globally. The massive wave of steel exports from China has flooded the global market with cheap Chinese steel, threatening the domestic steel industries of importing countries and escalating trade tensions.

China's Steel Industry in Crisis.

After a recovery phase at the end of 2023, China's steel industry, the world's leader in steel production and consumption, was expected to continue growing this year. However, the reality has been quite the opposite. The industry is currently facing a severe crisis as the real estate sector, the largest source of demand for Chinese steel manufacturers, remains deeply mired in a downturn. The world's largest steel producer, China Baowu Steel Group, has warned that the Chinese steel industry is facing a crisis far worse than the downturns of 2008 and 2015.

According to calculations by the China Iron and Steel Association (CISA), steel consumption in China in the first half of this year reached only about 478 million tons, a 3.3% decrease compared to the same period last year. Despite the sluggish demand, Chinese steel manufacturers continued to produce large quantities, with output reaching 531 million tons in the first half of the year. This has led to persistent overcapacity in the industry, continuously declining factory profit margins, and a sharp drop in steel prices.

Currently, rebar prices in China are at their lowest since 2017, and hot-rolled coil (HRC) prices have dropped to 3,200 yuan per ton, the lowest in four years. The steel crisis has also led to a decline in demand for iron ore, the main raw material for steel production. Iron ore inventories at Chinese ports typically decrease mid-year due to seasonal demand increases, but instead, inventories have continuously risen this year, now exceeding 150 million tons, the highest in two years. Consequently, iron ore prices have dropped more than 28% since the beginning of the year and are struggling to maintain the $100 per ton level.

Faced with steel overproduction and plummeting prices, Chinese steel companies have turned to boosting exports to international markets in search of profits. However, this has indirectly threatened the steel industries of importing countries and exacerbated global trade tensions.

China's Steel Export Wave Threatens Global Steel Industry

In the 2000s, China contributed about 15% of the world's total steel production. By 2023, this figure had risen to over 54%, making China the world's leading exporter of finished steel products. This year, according to CISA, China exported over 61 million tons of steel in the first seven months and is expected to export 127 million tons for the entire year, breaking the record of 110 million tons set in 2015. Notably, 2015 was also the last year when Chinese steel exports saw a record surge. At that time, G7 and G20 countries had to discuss ending overcapacity and established the Global Forum on Steel Excess Capacity (GFSEC). However, in 2019, China withdrew from the GFSEC, claiming it had completed its task. Since then, China's steel production capacity, which had decreased from 2016 to 2018, has started to grow again.

This year, fears of China flooding the world with steel, threatening the global steel industry, have resurfaced. The surge in cheap steel exports from this Asian country is putting significant pressure on the steel industries in many countries. Domestic steel sales are losing market share to Chinese imports, leading to increased unfair competition and further price pressure on domestic steel. For example, U.S. HRC prices have dropped about 40% since the beginning of the year, currently hovering between $630 and $650 per ton, the lowest since September 2023. In Europe, prices have fallen about 11% to 620 euros per ton. HRC prices in North America also dropped about 7% in July, marking the third consecutive month of decline.

To protect their domestic steel industries from the massive wave of Chinese steel exports, countries importing Chinese steel have planned to impose tariffs on these imports. Many Latin American countries are following the U.S. and Europe in imposing tariffs on imports from China, including steel. Between April and May of this year, Mexico, Chile, and Brazil increased tariffs on Chinese steel products, with some cases seeing tariffs more than double.

In Vietnam, Chinese steel accounts for about 70% of the total steel import structure. To avoid losing the market to Chinese imports, domestic steel companies have recently requested that the Ministry of Industry and Trade launch an anti-dumping investigation into Chinese steel.

According to Mr. Dương Đức Quang, Deputy General Director of the Mercantile Exchange of Vietnam (MXV), the draft Strategy for the Development of Vietnam's Steel Industry to 2030, with a vision to 2045, is being developed by the Ministry of Industry and Trade with the goal of promoting balanced, modern, and sustainable development of the steel industry, gradually overcoming the industry's limitations in recent years. Currently, Vietnam ranks 12th in the world and first in ASEAN in crude steel production, but the industry still faces limitations in technology, raw materials, production capacity, and product types. As a result, steel companies still have to import raw materials from China. Due to this dependence on imported materials, prices are often volatile, particularly when input material prices fluctuate, forcing domestic steel prices to adjust accordingly.

 Soure: Khánh Hà (MXV)