China steel

The China steel production data continues to confound us.

Production data overall looks relatively unimpressive (both CISA and IISI measures), and yet imports of ore continue to drift higher, even as broader imports remain weak (suggesting a lack of domestic demand, overall).

Inventory does look low, granted, and sits quite a bit below where you would otherwise expect it to be. China’s steel exports are also quite high, which is part of the answer to “how is production high if domestic demand is weak”; they are simply exporting the surplus abroad.

Whether that invites a trade response is yet to be seen.

China’s property market fell over, and steel demand should have weakened, which would in turn weigh on iron ore. Steel demand stayed high because of exports, and perhaps the internal reallocation story towards manufacturing has legs to it.

But I would still not expect the price of iron ore to remain so high, especially if trade disputes do arise.

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