Trade wars are now the flavour of the day but so far the hard measures

have yet to catch up with the aggressive rhetoric. An ongoing tit-for-tat

response between China and the USA may well worsen over the

coming months and change the picture for global trade.

In this issue however we take a look at the direct impacts of the tariffs

announced so far on steel. The result may be counterintuitive: higher

Chinese steel exports.

With inventory levels sliding again, the market may have now adjusted

to a healthier level. There remain doubts over real estate demand

however.

In particular the extent to which the state is supporting real estate

markets through social housing policies which we take a look at in our

end use section.

With concerns over Chinese domestic demand

and international trade, the question now for the

steel industry is will Chinese steel exports see a

rebound?

www.kallanish.com © Kallanish 2018 Page 1

Fig. 1 Daily steel production and demand 2010-2017 (tonnes)

Source: NBS, Kallanish

Table 1: Supply and Demand (million tonnes)

2017 YTD 2018 Y-o-y 2018 outlook Y-o-y

Crude Steel Production 831.7 136.8 5.90% 845.0 1.60%

Apparent Steel Demand 737.4 122.7 5.30% 756.1 2.53%

Real Demand Est 745.5 80.3 -1.80% 755.1 1.29%

Source: NBS, Kallanish

Issue 2, April 2016

China Steel Intelligence China Steel Intelligence March 2018

Can trade wars support Chinese exports?

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As trade has become such a hot topic in the first few months of this year steel

markets have been running around trying to calculate the actual impact of

each announcement as it comes out, no mean feat considering that there

have been significant new announcements on trade every few days. As things

stand however it is important also to not lose track of the larger underlying

trends that are driving steel trade, especially exports from North and East Asia.

Crucially, the Trump tariffs may not have much impact on the overall

competitiveness of Chinese steel internationally, or on the underlying drive to

export or not to export, which is set in China’s domestic steel market. So what

impact will the Trump tariffs actually have on Asia’s steel trade, and how are

China’s exports likely to develop going forward?

One key reason why the US more aggressive approach to trade is provoking a

response is that so much is still uncertain or ill-defined. Negotiations have

continued beyond the start of implementation of the Section 232 tariffs, and

even the agreements which appear firm have not specified how quota will be

calculated. South Korea for example, which is the only country to have a

concrete deal on avoiding tariffs, will be set a quota at 70% of average US

imports from the country over 2015-2017. But will this quota apply equally to all

products? Will the quota evolve over time? Will the calculations consider the

value of products imported? If specific products are later granted exemptions

to tariffs, will they also then be excluded from the quota limit? Or will the quota

limit itself have to be adjusted to exclude these products? These details will

only emerge as the niggling issues of implementation are ironed out over the

coming months.

To get a better sense of how trade will be affected, we’ve looked at customs

data from China, South Korea and Japan. One thing to note is that the US

tariff codes which will be charged the 25% tax do not cover all the codes we

normally use to report imports and exports. In fact, only around two thirds of

China’s exports to the USA are covered by the tariffs, as they exclude pipe

fittings and other products which we normally include in our monthly data. Of

the 6.46 million tonnes of steel reported exported to the USA by China, South

Korea and Japan in 2017, 6.02m t is covered by the tariffs. For this section, the

trade data only includes HS codes that will be charged the new 25% US tariffs.

South Korea is currently the only country to have agreed the outlines of a deal

to avoid duties. South Korean steel exporters will not have to pay the duties of

25% on steel and 10% on aluminium that the USA imposed as a result of a

Section 232 investigation. The country will only be allowed to export up to a

quota of 2.68 million tonnes of steel to the US, however, just 77% of the 3.47mt

of products covered by the investigation that it exported to the country in

2017.

www.kallanish.com © Kallanish 2018 Page 2

China Steel Intelligence March 2018

Can trade wars support Chinese exports?

Chinese steel

exports more

positive despite

Trump

Negotiations

so far

What do we

know?

Fig. 2 Korean exports to US swap duties for quota (t/m)

Source: Korean customs, Kallanish

SAMPLE V

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www.kallanish.com © Kallanish 2018 Page 12

China Steel Intelligence March 2018

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Table 7: Supply/Demand (m tonnes)

Mar Apr May June July Aug Sept Oct Nov Dec Jan Feb

Crude steel production 72 72.78 72.26 73.23 74.02 74.95 71.83 72.36 66.15 67.05 67 69.82

Finished steel exports 7.56 6.49 6.98 6.81 6.96 6.52 5.14 4.89 5.35 5.67 4.65 4.85

Finished steel imports 1.3 1.08 1.11 1.13 0.98 0.99 1.24 0.95 1.14 1.2 1.19 1.03

Apparent steel consumption

62.13 64.4 62.48 61.78 64.25 66.14 62.83 64.8 58.5 59.2 60.2 62.5

Calculated real demand 72.93 73.58 72.69 66.72 64.43 65.87 62.67 62.36 66.9 61.2 52.9 27.4

Table 8: End Users 2018

Mar Apr May June July Aug Sept Oct Nov Dec Jan Feb

Manufacturing PMI (NBS)

51.8 51.2 51.2 51.7 51.4 51.7 52.4 51.6 51.8 51.6 51.3 50.3

Manufacturing PMI (Caixin)

51.2 50.3 49.6 50.4 51.1 51.6 51 51 50.8 51.5 51.5 51.6

CPI 1.40% 1.20% 1.50% 1.50% 1.40% 1.80% 1.60% 1.90% 1.70% 1.80% 1.50% 2.90%

PPI 7.60% 6.40% 5.50% 5.50% 5.50% 6.30% 6.90% 6.90% 5.80% 4.90% 4.30% 3.70%

FAI (CNY trillion)A 9.38 14.43 20.37 28.06 33.74 39.42 45.85 51.78 57.51 63.17

Industrial Value-added 7.60% 6.50% 6.50% 7.60% 6.40% 6.00% 6.60% 6.20% 6.10% 6.20%

Real estate investment (CNY billion)

1929.20 2773.16 3759.50 5061 5976.1 6949.39 8064.40 9054.40 10038.70 1097.99 108.31

New Construction starts ytd (million sq metres)

315.60 482.40 651.79 857.2 1003.71 1149.96 1310.33 1451.27 1616.79 1786.54 177.46

Completed construction ytd (million sq metres)

230.31 281.74 339.11 415.24 470.21 522.96 576.94 656.12 762.45 1014.86 141.84

Real estate sales ytd (million sq metres)

290.35 416.55 548.21 746.62 863.51 985.39 1160.06 1302.54 1465.68 1694.08 146.33

FAI in railways (CNY billion)

99.49 154.45 224.81 303.12 380.75 441.25 526.02 597.29 669.17 800.62

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