China is ramping up its global exports of cheap steel, sometimes at a loss, as bulging stocks of the alloy give way to a worsening domestic demand picture for the commodity consuming giant.
Slowing construction and industrial activity has hit Chinese steel demand and prices hard in the past few weeks, prompting market participants to export more aggressively than ever, even to markets such as the Middle East and North Africa where it doesn't usually sell.
Major steel products in China are being sold below cost following a market slump that has lasted more than four months, the country's steel industry association said.
"The Chinese have been offering everywhere in the last three to four weeks, in whatever market they can reach and they can reach almost everywhere because their steel price has dropped dramatically," said a Russian steel trader.
"They are offering to Latin America, they are offering to Africa, they are offering to the Middle East, they are offering to Iran, even to a part of Russia. Everywhere."
Chinese steel exports to North Africa and the Middle East, were at a discount of $40 to $50 (U.S.) per tonne against Turkish and Russian steel, up from a discount of $20 to $30 about two weeks ago, traders said.
Turkish rebar, for example, was sold at around $610 delivered to customers in the Middle East this week, while Chinese exports were at around $560 on the same basis, according to price provider Platts SBB.
Hopes that Beijing's recent approval of more than $150-billion in infrastructure projects would revive steel demand, helped the price of steel ingredient iron ore to rise after it lost over a third of its value in the last two months.
Many, however, think this enthusiasm is only temporary and much more will be necessary to resuscitate the industry.
"It will take months for China to implement the announced programs," the trader said.
The export urgency is being driven by a need for Chinese steel players to generate cash flow to repay bank loans and fend off lawsuits.
"China's growth model is driven by the need to create jobs in order to avoid social unrest, so when they slow down domestically, they begin to export, and that creates trade tensions. I think we are entering (that) stage," said Gordon Moffat, director of Eurofer, the European steel producers association.
Chinese steel output, often subsidized by the government, has grown much quicker than demand over the last few years.
"Demand in the region is not picking up largely, but we managed to lower prices to attract bookings, though our profits are extremely weak," said a China-based trader whose focus is on exports to Southeast Asia.
Russian and Ukrainian producers are among the worst affected suppliers as, unlike some western steel makers, they mainly produce basic grades of steel, which compete directly with Chinese products.
Also, the recent fall in spot prices for iron ore and coking coal imported to China has given Asia an enormous competitive advantage, allowing offers of cheap steel to unusual markets such as the Middle East and North Africa.
"Of course this is putting pressure on prices and now domestic producers are trying to adapt, to develop defensive strategies and see how they can reduce the impact of these Chinese prices," the Russian trader said.
"Some mills in Europe are still okay because they produce higher-end steel but the Russians can't survive like this."
Europe is a more consolidated export market for China, but in the last few weeks Chinese offers to Europe have also been more attractive, traders said.
"We have been buying more Chinese products and I have heard a big Italian buyer has just bought 50,000 tonnes of hot-rolled coil out of China," a European trader said.
The trader said the long lead times (about 60 to 90 days before delivery from China) had put some customers off and the Chinese quality is not acceptable for all uses, but the competitive prices were certainly attracting more buyers.
The U.S. is better protected from the Chinese steel flood thanks to anti-dumping duties. Nevertheless, more bookings of other Chinese steel products have taken place, traders said, with prices up to $100 cheaper than domestic ones.
Analysts and traders struggle to predict when steel prices will turn around but they agree steep Chinese production cuts will be needed for this to happen.
"People are freaked out about China. They are producing near all-time-high levels and not consuming at nearly that rate and steel makers are unwilling to cut production," said Michelle Applebaum, an analyst with Steel Market Intelligence.
"I think we'll see production cuts, but right now they're creating a big problem and it will be a while before steel prices move up."