China’s Vast Steel Industry Soaks Up World’s Unwanted Metal

(Bloomberg) --

In a curious twist to typical trade flows, the world’s dominant steel exporter has emerged as an unusual destination for unwanted shipments from overseas.

China’s purchases of steel billets have surged more than tenfold since April, with imports of semi-finished steel coming mostly from traders and producers in the United Arab Emirates, Malaysia and other Southeast Asian nations. The metal is then molded into commonly used products like the reinforcement bar used in concrete.

It’s a dynamic that hasn’t surfaced since the global financial crisis. In the meantime, China’s vast steel industry has grown apace, churning out material to build the nation’s skyscrapers, bridges and cars, and on occasion swamping the world market with its excess capacity. But, as mills outside China are forced to counter feeble growth, steel, albeit in small amounts, is flowing the other way.

“There is a lot of talk about steel imports now,” said Tomas Gutierrez, analyst at Kallanish Commodities Ltd. “Globally, demand has not been great this year while Chinese demand has been stronger than expected.” There’s concern that imports of finished steel could soon follow, he said.

In terms of production costs, Chinese steel is dependent on imports of iron ore from as far away as Brazil and for much of the year prices have been elevated because of supply disruptions. Mills outside China, however, often source iron ore from within their own countries, or rely on scrap, which has helped limit cost pressures.

At about 1.4 million tons so far in 2019, the imports are insignificant compared with the 70 million tons China exported last year from over 900 million tons of domestic production. Still, China’s top steelmaker Baoshan Iron & Steel Co. said last week it’s monitoring the surge in imports.

“There is a fear that over time, Chinese steelmakers may be forced to compete with these cheaper imports,” said CRU Group analyst Richard Lu.

--With assistance from Martin Ritchie and Alfred Cang.

To contact the reporter on this story: Krystal Chia in Singapore at kchia48@bloomberg.net

To contact the editor responsible for this story: Phoebe Sedgman at psedgman2@bloomberg.net

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