Global Market Scan: The spillover from tumultuous times in China’s steel industry

The ongoing decline in steel rebar prices globally points to underlying issues within the construction industry internationally. Key factors behind the price decrease include unbalanced supply and demand and a slowdown in China’s economic growth. China is the largest producer and consumer of steel worldwide, playing a critical role in the commodity’s global markets.

The Chinese government has been unsuccessful in stabilizing the steel industry despite producers curbing their output. Lower steel production has also affected other commodities like iron ore, for which demand fell nearly 10% in one week during mid-August. Recently, China Baowu Steel Group Corp.’s Chairman Hu Wangmingthat the Chinese steel sector should expect a “harsh winter,” a worse downturn than the industry faced in 2008 and 2015.

This year, steel inventory sitting in ports has increased monthly, now exceeding 150 million tons, as Chinese producers have been looking to international markets for more sales. In the first half of 2024, the country’s exports surpassed the volumes seen in the previous eight years. However, other countries have resisted these efforts by imposing tariffs to safeguard their steel industries.

Analysts at Goldman Sachs expect China’s excessive exports to reverse in the coming years, as producers’ recent drastic decreases in output are helping restore the balance between supply and demand. However, an increase in domestic steel consumption in China seems unlikely without new government stimulus for the country’s construction sector and for the overall economy.

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