Demand for steel is collapsing, but China keeps producing it. Already high trade tensions will increase.

Too Much Steel in China Means Trouble for the World

Bloomberg reports Too Much Steel in China Means Trouble for the World

When it comes to steel, China is king, producing more than 1 billion tons a year, well over half the world’s output. But now it’s wobbling. And just as it shook the global industry during its rise to become the metal’s super-producer, a decline from peak steel has the potential to be no less turbulent.

Quite simply, a domestic construction slump means there’s too much steel and too little demand. For the rest of the world, the fear is that it will become more of a dumping ground for excess product, cutting prices, driving plants out of business and putting workers out of jobs.

That would add to the economic challenges facing the world right now, particularly in Europe where Germany is set to barely grow at all this year. The US has ramped up protections for the industry, but any perceived threats could still become political issues in the presidential election given steel’s importance in swing states like Pennsylvania.

In Europe, where steel demand was already anemic, Germany’s Salzgitter AG cited excess capacity and Chinese exports when it reported a first-half loss this week. The Economy Ministry told Bloomberg it’s monitoring the situation and noted the “tough international competition.” ArcelorMittal SA, Europe’s top steelmaker, has made similar criticisms.

“The warning from China indicates that our fears are now materializing,” said Martin Theuringer, a managing director of the German Steel Association. “It’s about resilience. The overcapacity is jeopardizing the profitability and sustainability of the industry here.”

The last steel crisis in 2015 and 2016 sparked a political firestorm in Europe and the US. Donald Trump centered much of his 2016 election campaign promising to defend the US from cheap Chinese imports, while lawmakers across Europe scrambled to protect their domestic industries.

China’s scale means that even the smallest ripple in domestic demand can cause tremendous damage when it overspills. Its exports were as big as all of North America’s output in the first half, and are on track to reach about 100 million tons this year.

That’s been fueled by a slump in domestic prices that makes it more profitable to ship some steel overseas. Hot rolled coil — a benchmark product — is shipping from China at its cheapest since 2020. Global prices, which typically lag China by 2-3 months, are also at multiyear lows.

There is no demand in China for steel but China is supposedly on pace to grow 5 percent.

As China tries to cram cars and steel into the global economy instead of working on internal demand, things are going to get interesting.

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