Elevated China steel exports set to persist, threaten to worsen trade friction

BEIJING/SINGAPORE, Oct 18 (Reuters) - Chinese steelmakers, already exporting at near-decade high volumes, are set to keep pushing out shipments in 2025 to manage overcapacity and soft domestic demand, industry insiders and analysts say, threatening to worsen mounting trade frictions.

As local consumption remains suppressed by a weakened property sector, this year the world's dominant producer of the alloy is on track to export more than 100 million metric tons, the most since 2016. In the first three quarters, exports rose 21.2% to 80.71 million tons, customs data showed on Monday.

China hit a record 112.4 million tons of steel exports in 2015, with the volumes shipped in 2016 coming right below that.

For 2025, China is likely to export roughly 90 million to 100 million tons, according to forecasts from five analysts who cite rising global demand amid easing monetary cycles and the price competitiveness of Chinese steel.

China's biggest listed steelmaker Baoshan Iron & Steel Co (600019.SS) a unit of top global steelmaker China Baowu Steel Group, exported a record of 5.84 million tons of steel products in 2023, up 46.6% annually, and in late August said it targeted shipments of over 6 million tons for this year and more than 10 million tons annually by 2028.

It did not break out an export forecast for 2025. Officials at two other top Chinese steelmakers told Reuters they planned to increase exports in 2025, declining to give details, and an analyst briefed on the situation said another seven steel mills have similar plans.

All three declined to be identified as they were not authorised to speak to media. "The low cost of Chinese steel, and the rising demand from (Southeast Asia), MENA (the Middle East and North Africa) and India will pose upside risks for China's steel exports in 2025 and beyond," said Lawrence Zhang, principal consultant for steel and raw materials market at Wood Mackenzie.

The World Steel Association on Monday predicted a 1.2% rebound in global demand to 1.77 billion tons in 2025 following three years of decline.

TARIFF TENSIONS

China's surging steel exports have sparked complaints from an increasing number of countries. Some, including Turkey and Indonesia, have imposed anti-dumping duties, arguing that a flood of cheap Chinese steel hurts local manufacturers.

Some 28 trade remedy cases have been brought this year against Chinese steel products, compared with just eight over the previous three years, data from the state-backed China Trade Remedies Information showed.

"This trend (of complaints) will continue and intensify in 2025," Wood Mackenzie's Zhang said. A spokesperson for Chinese customs, when asked about the trade tensions at a press conference on Monday, said the majority of Chinese steel products are to meet domestic demand.

However, with the industry innovation and upgrading, he said, China's steel products will have broad appeal in external markets. China's flood of exports comes despite declining output, which dropped across the first three quarters of this year by 3.6% year-on-year, official data showed on Friday, an indication of the weakness of domestic demand.

The World Steel Association forecast China's steel demand to fall 3% this year and 1% in 2025, leaving plenty of room for oversupply to find its way into export markets, analysts say.

While Chinese steelmakers and trade groups have warned that trade frictions and a strengthening currency will hinder exports in 2025, analysts and traders said they expect China's export prices to remain competitive. Mounting trade tensions over Chinese steel are dampened by the fragmentation of its export markets, analysts said.

The main destinations for Chinese steel are Southeast Asia, the Middle East and South America, customs data showed. Last year, China exported $85 billion in steel, less than 1% of which went to the U.S. Still, in April, President Joe Biden called for sharply higher tariffs on Chinese metal products, and his administration has said action also needs to be taken to protect the U.S. electric vehicle and solar power industries.

Tomas Gutierrez, head of data at consultancy Kallanish Commodities, said the only trade case that could derail China's export momentum is an anti-dumping probe into hot-rolled coil launched in July by Vietnam, China's top steel export market.

"That could be very disruptive. But at the end of the day, China exports to clear its domestic overproduction," he said. "One way or another Chinese exporters will find a price level that allows exports," he said.

Otherwise, the key risk to Chinese steel exports would be a crackdown by Beijing on evasion of value-added tax. Four analysts have estimated that exports for which the tax wasn't paid accounted for around one-third of last year's total exports of 90.26 million tons.

Authorities have set up a team to investigate such "illegal" steel exports, Luo Tiejun, vice chairman of the state-backed China Iron and Steel Association, was cited as saying last week on the association's social media account.