Table of Contents
Key Points:
- Lowered steel consumption forecast due to cheap Chinese imports distorting global markets.
- U.S. and EU tariffs fail as surplus Chinese steel depresses prices in other markets.
- China’s manufacturing surplus and trade barriers create unsustainable conditions for global steel producers, cutting ArcelorMittal’s profits.
ArcelorMittal South Africa, a Gauteng-based steelmaker partially owned by South African businesswoman Noluthando Gosa has raised concerns about Chinese steel exports affecting global markets.
The company highlighted the unsustainability of current market conditions due to a flood of cheap Chinese steel in a Thursday statement. This influx caused a fall in second-quarter profits for the world’s largest steel producer outside of Asia.
Impact on global trade
The surge in Chinese steel exports has worsened trade tensions, particularly with the US and European Union. These regions accuse China of using state subsidies to create excess industrial capacity. Despite trade barriers, including European tariffs, the steel market remains volatile, with prices dropping below marginal costs in both the US and Europe. ArcelorMittal has lowered its forecast for steel consumption growth outside China, signaling broader economic challenges ahead.
“Current market conditions are unsustainable,” ArcelorMittal stated. “China’s excess production relative to demand results in very low domestic steel spreads and aggressive exports. Steel prices in Europe and the US are below the marginal cost.”
Political and economic flashpoints
A fresh surge in steel exports from Asia, especially China, could become a political flashpoint in the West. This issue was a key campaign point for Donald Trump in his first presidential run. China’s economy has been uneven this year, with manufacturing performing well at times, while real estate struggles.
This has pushed China’s trade surplus to a record high as exports have surged. The U.S. and EU, two of China’s biggest export markets, are erecting new trade barriers after accusing Beijing of using state subsidies to build excess industrial capacity.
Ineffective trade barriers
Although Europe has deployed tariffs to target Chinese exports, the global steel trade remains volatile. If one market blocks exports, the action shifts elsewhere, dragging down prices across the board. The surge in exports has come as demand for steel is growing more slowly than ArcelorMittal expected.
The company lowered its forecast for apparent steel consumption outside China to between 2.5 and three percent this year, down from an initial estimate of up to four percent. Steel consumption in China could even contract, according to ArcelorMittal, which adjusted its 2024 forecast to a range of -1 to +1 percent.
ArcelorMittal reported second-quarter earnings before interest, taxes, depreciation, and amortization of $1.86 billion. This is down from both the first quarter and the same period last year but ahead of analysts’ estimates.
