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As the steady-state profitability of the domestic market lifts, the incentive to seek sales overseas will fall and we expect carbon steel exports from China to drop. Importantly, the price of these exports will be closely linked to the higher domestic prices, therefore, they will be priced higher relative to costs compared with recent years. We believe this situation will benefit steelmakers everywhere, as capacity utilisation of the industry lifts and profitability improves.

Improved Chinese industry health to spread?
We believe that closures in the Chinese steel sector have fundamentally changed the structure of the industry and, as discussed in our previous two Insights of this series, we expect this will lead to higher margins on steel sales and, more specifically, a stronger domestic market. But what does this mean for exports of steel, export prices and, more importantly, for steel makers elsewhere in the world?

The strength of the domestic market: a key determinant of exports
Analysis previously carried out by CRU has shown that there are three key determinants of exports from a country. These are:

  • Strength of domestic market;
  • Cost competitiveness;
  • Strength of destination markets.

Our analysis indicates that the primary determinant is ‘strength of the domestic market’. The other 2 factors become important when a significant shift occurs, such as in 2014 when steel demand and prices in the USA were very strong, which pulled in imports, but also lifted scrap prices. In turn, higher scrap prices conferred a cost advantage on Chinese steelmakers delivering into the South East Asia region. In response, during the year, Chinese exports ramped up by more than 50%, with increased exports to the USA, but primarily to South East Asia.

Read the full story: http://bit.ly/Chinese-steel-exports

Read more about CRU: http://bit.ly/About_CRU

About CRU
CRU offers unrivalled business intelligence on the global metals, mining and fertilizer industries through market analysis, price assessments, consultancy and events.

Since our foundation in 1969, we have consistently invested in primary research and robust methodologies, and developed expert teams in key locations worldwide, including in hard-to-reach markets such as China. CRU employs over 250 experts and has more than 10 offices around the world, in Europe, the Americas, China, Asia and Australia – our office in Beijing opened in 2004.

When facing critical business decisions, you can rely on this first-hand knowledge to give you a complete view on a commodity market. And you can engage with our experts directly, for the full picture and a personalised response.

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SOURCE CRU

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