Contradictions in steel market: Implications of China’s export expansion

China’s share in global steel exports rose from 14% in 2022 to 23% in 2024, cutting into the market share of other major exporters.

Source: Drewry Maritime Research

Shift in trade patterns

Mexico, the second-largest exporter of steel products, experienced a decline in exports to all its top partners – US, Canada and Colombia – for the second consecutive year whereas China’s exports to these destinations expanded YoY, with the shift for Colombia being more drastic. Similarly, Japan’s exports to South Korea and Thailand have contracted while China’s exports to these countries have expanded. 

China’s exports to Vietnam, the UAE, Saudi Arabia and Brazil more than doubled in 2024 compared to 2022 with India and Brazil now being among the top 10 trade partners for steel, unlike in previous years. 

Double-edged sword for shipping demand

The steel market turned around with China capturing a larger market share, translating into strong shipping demand despite subdued global steel trade in 2023 and 2024. While the global tonne miles generated by steel trade have expanded 2.9% and 3.9% in 2023 and 2024 respectively, the shipping demand that emanated from China for this trade jumped a whopping 25% and 23% during the respective years.

Source: Drewry Maritime Research

China’s exports to farther locations such as Saudi Arabia, the UAE and Brazil dovetailed the global shipping demand, but the demand for vessels by other major exporters declined. Exports from Indonesia were an exception as the country’s tonne miles rose 26% YoY, with more than 50% of the country’s exports to China due to backward and forward linkages in the steel economy, which in turn highlights China’s role in pushing steel exports.

While the tonne miles generated by the global steel trade as a share of global dry bulk shipping demand has risen by a miniscule 0.1 percentage point, tonne miles generated by China’s steel exports as a share of the global dry bulk tonne-mile demand continued to trend upwards, expanding from 2.8% in 2023 to 3.4% in 2024. It is evident that China ’s role in the steel industry and the derived shipping demand has been solidifying.

Source: Drewry Maritime Research

However, the contraposition of the rise in steel exports and heightened tonne-mile demand from China is the adverse impact on steel production in major economies. Notwithstanding the impact of high energy costs and subdued industrial activity in domestic steel production in many steel producing economies, China flooding the market with cheap products has truncated the export market for them, dampening their steel production.

Global steel production declined marginally for the second consecutive year in 2024, with a 1.4% decline in production of top producers. Since exports constitute a significant proportion of steel production in major steel exporting countries such as Japan and South Korea, China’s consolidation of the market has worsened the outlook for production volume in these economies in particular, with 3% and 4% YoY contraction in Japan and South Korea, respectively. Additionally, the EU’s production edged up marginally in 2024 but is far below the last five-year average and second-lowest historically. Its imports from China sprung 17.6% YoY as cheap imports are being preferred against the backdrop of high energy costs limiting domestic production. As a result, production in all major steel producing economies, except India, is reshaping due to the elephant in the room.

Hence, the impact on shipping is two-folds. The shipping demand, particularly for sub-Capesize vessels has been aided by the rising trade of steel products and exports to farther locations. China’s growing market share will aid stakeholders to expect sustained demand from the country and strategise voyage movement accordingly. On the contrary, limited steel production has dampened the import demand for iron ore and coking coal from major steel producers, in turn hurting dry bulk shipping demand. While iron ore imports for the EU, Japan and Taiwan shrunk for the second-consecutive year, coking coal imports shrunk for all major importers except China in 2024.

Way forward

Due to the influx of cheap Chinese steel, many economies such as India, the US and Japan have announced the imposition of tariffs on steel imports. Anti-dumping duties have also been levied by multiple economies in the past with the objective of import substitution but the corresponding impact on limiting imports has been varied. Even though more anti-dumping investigations are underway and tariffs have already been imposed by many economies such as the EU, imports have persisted as most Chinese steel products are competitive even after inclusion of tariffs. For instance, the EU extended its protective measures on steel imports in June 2024, but the region’s average imports in 2H24 were higher compared to 1H24.

Source: Drewry Maritime Research

While intensified protective measures are likely to dent China’s steel exports to the EU (through import tariffs) and the US (through the recent ‘melt and pour’ standard for North America, impacting the circumvented exports through Mexico), shipping demand emanating from China is likely to flourish as the country is expected to export more to farther locations such as the Middle East and Brazil where scope for volume expansion is greater. For many economies, additional tariffs will add to the import prices but Chinese imports will still be economical given that steel prices are reeling under pressure due to overcapacity.

Steel production in advanced economies will remain subdued, but the outlook for 2025 is brighter than 2024 as sentiments are poised to improve in the upstream sectors of the steel industry, in tandem with the reduction in borrowing costs, indicating that we are past the trough. This is likely to improve domestic steel production in advanced economies for consumption as well as exports, aiding demand for steel-making inputs.

Read detailed analysis in our forthcoming Dry Bulk Forecaster.