China Retaliates In Trade Wars – Increases Steel Output To Record High
By Tyler Durden
A funny thing happened when US slapped a major tariff on China's steel exports… prices exploded higher. But the almost 50% surge in steel prices since mid-December back to 15-month highs have left traders equally split on what happens next. Will record production levels exaggerate a global glut amid tumbling exports and rising tariffs, or will China's trillion-dollar surge in credit fuel yet more so-called “iron rooster” projects driving domestic demand even higher. For now, it appears the former is more likely as US Trade reps suggested further protectionism looms.
Since Dec 23rd 2015 when the US imposed a 256% tariff on Chinese steel imports, composite steel prices have soared almost 50% even as exports have slipped…
Faced with collapsing exports and a lack of domestic demand (and surging inventories) along with zombie steel mills on the verge of bankruptcy and desperately in need of cash flow or else China's whole red ponzi would fail, the central planners unleashed a trillion dollars of new credit in Q1…
Which enabled, among other things, the so-called “iron rooster”-stimulus program:
“Mills now have their order books filled till July or onward,” said Li Qibao, an analyst at Changjiang Futures Co. in Wuhan, who predicts that prices will go on rising.
There are “unmistakable signs of recovery in demand, with the help of an ‘iron rooster’-style construction boom that has come back at full speed,” Li said, referring to a nickname for China’s previous growth model as the Chinese pronunciation of the phrase translates as ‘railroad, highway, infrastructure.’
The unexpected rebound in China’s steel market this year is set to keep rolling because record output by mills has so far failed to replenish inventories as the government cranks up stimulus to boost growth.
Stockpiles of steel reinforcement bar, used in construction, sank for a sixth week, contracting 6.8 percent in the period to April 15 in the biggest drop since October 2014, according to Shanghai Steelhome Information Technology Co. Rebar futures in Shanghai rallied to the highest in a year on Tuesday, and are up 39 percent in 2016. Spot prices have risen 46 percent.
The rally in 2016 follows five straight years of declines and has been a welcome respite for the world’s largest steel industry, which has been grappling with overcapacity, losses and forecasts for a long-term drop in the nation’s demand. In March, mills in China churned out more metal than any month on record as the economy stabilized, with a surge in new credit spurring a property sector rebound. The surprise rally in the biggest steel producer has also helped to lift global iron ore prices.
And that explains the surge in price (domestic demand) despite global weakness and inventory glut…
However, there is a dark side to all this credit-fueled malinvestment...as Reuters reports, despite pressure to curb steel output and relieve a global glut, China said on Tuesday its production actually hit a record high last month as rising …read more
Source: China Retaliates In Trade Wars – Increases Steel Output To Record High
