China's steel demand is expected to decline significantly due to the real estate crisis, with domestic demand projected to account for less than half of global demand in 2023. The downturn in the real estate sector, characterized by excess housing inventory and a slowdown in new construction, is the main factor behind this shift.
The recovery in property-related steel demand is not expected until 2025 or 2026, as the Chinese government limits new housing supplies and tries to clear existing inventories. The weak performance of new construction starts, which is the most steel-intensive phase of property development, will continue to pose challenges for domestic steelmakers.
The financial health of Chinese steel companies has deteriorated, with nearly three-quarters reporting losses in the first half of the year. Many firms are at risk of bankruptcy due to poor profitability in steel sales. In September, production of medium-thick hot-rolled coil, a key indicator of flat steel products, declined by 5.4% from the previous month and 6.4% year-on-year.
Trade tensions and the potential for tariffs also add to the challenges faced by the Chinese steel industry. China's steel exports are expected to reach an eight-year high this year, driven by a domestic supply glut caused by the property crisis and manufacturing slowdown. However, the imposition of tariffs in 2025 could hinder this growth.
China is the largest steel exporter globally, accounting for approximately 55% of the world's steel production. While steel exports have rebounded this year, anti-dumping measures from various countries, such as Thailand, Mexico, Brazil, and Canada, pose a threat to future exports. These countries have already implemented significant tariffs on Chinese steel products.
The rise of protectionist measures has created a challenging environment for steel producers in importing countries, particularly in Southeast Asia and the Middle East. Local steelmakers struggle to compete with the lower prices of Chinese steel. However, some experts believe that the impact of these tariffs may be short-lived, as steel exporters often find ways to circumvent restrictions by rerouting shipments through third-party countries.
The geopolitical landscape surrounding steel trade is further complicated by the potential for increased tariffs from the United States. The Biden administration has called for tripling tariffs on Chinese steel, while former President Donald Trump has suggested raising tariffs by 60% if re-elected. However, the actual impact of these threats may be limited, as less than 1% of Chinese steel exports are shipped to the U.S. market.
The future of steel production and exportation in China will be shaped by the interplay between domestic demand, international trade policies, and market dynamics.