Chinese Steel Exports Hit Year High

October Chinese steel exports jumped for the fifth straight month to the highest level this year, coming in at 2.7 million tonnes (mt), a double from the year's low in May.

All-time record Chinese steel production levels have tipped China into a meaningful net export position and even small increases in exports from a region that is half the globe's steelmaking capacity are already having a domino effect in depressing steel prices in other regions.

The uptick in exports and a 17% decline in total imports caused net exports to more than triple in the month to 900,000 tonnes from 280,000 tons in September.

Although the Chinese government continues to talk about production cuts in the wake of rising inventories and exports, China's steel mills seem staunch in their commitment to run flat-out in what appears to be a pissing contest -- with the lower-cost larger mills refusing to cut production -- and talking openly of this refusal -- while the smaller high-cost and "backwards and polluting" provincial mills of course are also running flat-out.

We've seen this type of thing before, and the net result is clearly more pressure from Chinese exports coming at the other Asian markets and eventually hitting the West.

We do not believe that China's extensive stimulus measures will be enough to keep domestic consumption in line with current production levels in the absence of production cuts. We expect Chinese exports to continue to rise through the fourth quarter as recent domestic price increases will drive still greater production in the region. Exports will continue as the supply "safety relief valve."