Chinese Steel Exports Forecast to Expand

Steel Market Update saw a note from Bank of America Merrill Lynch metals and mining research group out of the UK regarding takeaways from their recent trip to China. In the note the group was skeptical of the push by the Chinese central government to remove another 80 million metric tons (88 million net tons) of steel making capacity from the markets by 2017. “The steel sector is likely to stay oversupplied, in our view. We do not believe government plans to reduce capacity by 80Mn tonnes by 2017 are likely to be achieved. 60% of capacity is controlled by the SOEs, which have social security as their key objective, not profit. The situation is made worse by the banks that need to see mills producing to avoid losses on loans…” (SOEs = State Owned Enterprises)

The BoAML research team then continues with, “…With demand potentially weaker in 2016 due to issues in real estate, exports are likely to stay elevated, and given the push towards consumption-led growth an all-resolving stimulus package seems unlikely, which means exports could rise further from current 130Mn tonnes [143 million net tons].”