In 2025, it is predicted that China's steel exports will decline due to the ongoing effects of tariffs.

• According to industry watchers, China's steel exports will reach an eight-year high before being affected by tariffs and negatively impacting the industry in 2025.
• Macquarie Capital strategists forecast that China's steel exports will reach 109 million tons in 2021, but will decline to 96 million tons by 2025.
• Beijing's potential tax crackdown is adding to the challenges faced by Chinese producers, who are already grappling with mounting overseas tariffs and weakened domestic demand.

According to industry watchers, China's steel exports will reach an eight-year high before being affected by tariffs and negatively impacting the industry in 2025.

Last year, China was the largest exporter of steel, accounting for approximately 55% of the world's steel production. This year, the country's steel exports are expected to surpass 100 million metric tons, reaching levels not seen since 2016.

Macquarie Capital strategists predict that China's steel exports will decline from 109 million tons in 2021 to 96 million tons in 2025. However, analysts from the investment bank believe that trade tariffs could further curb China's steel exports, although this may take some time to manifest.

Analysts interviewed by Citigroup concurred with their predictions that China's steel shipment will decline due to anti-dumping measures, according to Ren Zhuqian, an analyst from steel consultancy Mysteel, in a Citigroup note this month.

Amid a domestic supply glut, foreign markets have been especially important for China's economy, which is facing a prolonged property crisis and slowdown in manufacturing activities.

In September, China's steel exports increased by 26% compared to the previous year, reaching 10.2 million tons, which exceeded the 10-million ton a month benchmark set in June 2016. During the first nine months of the year, exports rose by 21.2% year on year to 80.7 million tons, according to the customs data released last week.

In 2015, the country's steel exports reached a record high of 112 million tons. Since then, they had been declining until they began to improve in 2020.

Since then, steel export growth has increased rapidly due to low domestic demand, despite a sharp decline in overall export growth in China in September, which was caused by a series of poor economic indicators.

Anti-dumping 'Wac-A-Mole'

Anti-dumping measures, including tariffs, have been ramped up by trading partners in response to concerns about unfair competition from cheap steel imports from China.

Chim Lee, senior analyst at the Economist Intelligence Unit, stated that steel producers in importing countries, particularly those in Southeast Asia and the Middle East, have been "under massive strain."

In August, Thailand increased anti-dumping duties to 31% on hot-rolled coil and high-strength steel used for critical infrastructure construction from China. Meanwhile, Mexico imposed a nearly 80% tariff on some Chinese steel imports late last year.

The Brazilian government imposed 25% tariffs on all steel products from the country, while Canada's 25% surtax on Chinese steel products took effect on Tuesday.

According to Tomas Gutierrez, head of data at Kallanish Commodities, protectionist measures tend to have short-lived impacts, as steel exporters often resort to "circumvention" to avoid China's label by making transits through a third-party country.

Gutierrez stated that the ongoing anti-dumping probe into hot-rolled coil in Vietnam could negatively affect China's export momentum as it affects a much higher volume of Chinese steel.

In 2023, Vietnam was one of the top importers of Chinese steel, accounting for approximately 10% of the country's steel exports, according to a Mysteel report. Additionally, Thailand, India, and Brazil were also significant destination markets for Chinese steel.

The Indian government imposed tariffs of between 12% and 30% on some steel products imported from China and Vietnam, increasing an anti-dumping duty it imposed on Chinese steels last year.

"We observe a Whac-A-Mole situation," EIU's Chim stated. The tariffs cause Chinese steel manufacturers to shift to other markets, "until that market also imposes new trade limitations."

In April, the U.S. President Joe Biden's administration proposed tripling tariffs on Chinese steel, while Republican presidential nominee Donald Trump stated that he could increase tariffs on Chinese goods by 60% if he gets re-elected next month.

The impact of threats from Washington on Chinese steel exports would be minimal, as only 0.9% of $85 billion worth of steel exports to the U.S. in 2023 were affected.

Dwindling demand

For the first time in six years, the World Steel Association has forecast that China's domestic steel demand this year will be less than half of global demand due to the ongoing downturn in the country's real estate sector.

According to EIU's Chim, China's property-related steel demand may not experience a significant increase until 2025 or 2026, as Beijing aims to control new housing construction while simultaneously addressing existing housing inventory.

The most steel intensive part of the property construction process will remain weak, according to Chim.

He stated that state-led infrastructure investment, which has shifted its focus from roads and railways to energy infrastructure, is unlikely to bridge the gap left by home builders.

Nearly half of Chinese steel companies reported losses in the first six months this year, with many at risk of bankruptcy.

In September, the production of medium-thick hot-rolled coil, which serves as a proxy for flat steel products, decreased by 5.4% compared to the previous month, and 6.4% year-over-year, according to S&P Global, citing official customs data.

A spokesperson for China's customs administration stated that most Chinese steel products are intended for domestic demand, but later clarified that hard-rolled coils would have international appeal due to ongoing innovation and product enhancements in the industry.

A possible tax crackdown

The potential tax increase in Beijing could negatively impact China's steel sector.

This year, steel mills have faced scrutiny from regulators due to accusations of tax evasion in order to lower export prices.

Luo Tiejun, vice president of the state-backed Iron and Steel Industry Association, stated in a meeting last week that an investigative team had been established by authorities to combat "illegal" steel exports.

Gutierrez stated that if China truly carried out the investigation, Chinese exports would become less competitive and export volumes could decrease. However, the government may not yet have the "confidence" to proceed with it.