US ELECTIONS: China's steel markets brace for potential tariffs, policy continuity

China’s steel products could face additional tariff hikes on exports if Donald Trump wins the US presidential election but its domestic markets are prepared to handle any potential fallout after the election outcome, market participants told S&P Global Commodity Insights.

Under the current US administration, China is already facing a 25% tariff on its steel exports. If Kamala Harris wins the presidential election, market participants expect policy continuity. The US has also imposed heavy tariffs to secure its critical minerals supply chain, including a 100% tariff on Chinese electric vehicles.

China's economic fundamentals have been under pressure from soaring debt and deflation, but exports have been a bright spot amid these challenges.

Market sources indicate that a US tariff escalation against China could further hinder China's already slowed economic growth, potentially reducing domestic steel demand and worsening the overcapacity issue.

China's steel markets are more prone to trade barriers as domestic consumption has been lagging for months. Meanwhile, its lithium markets are less worried about the US election, as Chinese lithium prices are already hovering near multiyear lows.

Market participants in China's steel markets are also closely monitoring the country's National People’s Congress meeting from Nov. 4 to Nov. 8, anticipating fiscal stimulus announcements.

Participants expect China to offer stimulus measures aimed at helping local governments swap existing high-interest-rate debts for lower ones. They anticipate efforts to stabilize household income expectations by increasing asset prices, particularly in property and equity markets, to boost domestic consumption.

However, market sources indicate that the potential fiscal stimulus may not fully offset the challenges in the property sector and global trade.

Infrastructure

• Market chatter suggests that during the National People's Congress meeting, China could introduce fiscal packages of as high as Yuan 10 trillion ($1.404 trillion) in government bonds.
• The stimulus is expected to focus on local government debt swaps, the purchase of unsold homes and idle lands from developers, and enhancing social welfare to shift economic growth to consumption and lift China out of deflation.
• China’s apparent domestic steel consumption declined to 933 million mt in 2023 from 1.048 billion mt in 2020 and might fall further in 2024 to below 900 million mt, the China Iron and Steel Association has said.

• Domestic steel demand may hover in the 850 million-900 million mt range over the next five years, as policy stimulus may not immediately lead to growth in China’s property sector, some mills sources said.
• China’s steel demand is expected to decline 1% on the year to 874 million mt in 2025, following a 1.8% year-on-year drop in 2024, according to Commodity Insights.
• Steel demand in the property sector could weaken 6.5% on the year to 231 million mt in 2025, slowing from an 8.2% year-on-year fall in 2024, due to a low base factor and increased government stimulus, Commodity Insights analysts have said.

Trade flows

• Exports have been a major contributor to growth in China’s manufacturing sector so far in 2024, helping to cushion the impact of sluggish consumer spending in the domestic market.
• Existing US import tariffs have reduced China's steel exports to the US, according to China’s customs data.

• In 2024, China exported about 638,356 mt of finished steel to the US over January-September, down 1.6% on the year and 29.6% from the same period in 2017 -- the year before US-China trade tensions started, customs data showed.
• Finished steel exports to the US in the first nine months of the year accounted for just 0.8% of China’s total finished steel outflows.
• Potential additional tariff hikes may have only a slight direct impact on China’s steel export market but could negatively impact Chinese steel demand.
• Over January-September, the dollar value of Chinese goods exported to the US increased by 2.8% on the year to $381.14 billion, and accounted for 14.6% of the total value of exports, customs data showed.
• The export value of China’s mechanical and electrical products, the high steel-intensive sector, increased 6.1% on the year at $1.551 trillion over January-September.
• Market sources expect China’s finished steel exports to fall to 80 million-90 million mt from an anticipated more than 100 million mt in 2024, due to escalating trade conflicts and global trade policy uncertainty.

Prices

• Prices in the hot-rolled coil steel sector, a leading indicator of the manufacturing sector and a proxy for China’s steel export market, have fallen this year.
• Sluggish domestic demand has led to lower HRC prices, setting the stage for robust exports in 2024. Platts, part of Commodity Insights, assessed domestic and export HRC prices respectively at an average of Yuan 3,639/mt and $511/mt FOB China over January-October, down by 9.3% and 12.2% on the year.
• More than 50% of rebar volumes, an indicator of demand in the construction steel sector, are consumed by China's property sector.
• Chinese domestic rebar prices averaged Yuan 3,567/mt over January-October, falling 10.5% from the average during the period in 2023, according to Platts data.
• Meanwhile, Chinese domestic lithium salts prices are expected to remain rangebound in the short term, with oversupply weighing on growth in the long term, market sources said.
• Platts assessed battery-grade lithium carbonate at Yuan 74,500 ($10,506)/mt on a DDP China basis on Nov. 1, falling 87% from 2022, when the price hit record highs.