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Steel Has Worst Week in a Year as Trump’s Tariffs Deepen Gloom

Steel’s had a bad week. Prices in China have slumped as inventories rise in the country that makes half the world’s supply, and increasing U.S. trade protectionism may only make matters worse.

Stockpiles in China could be set to expand even further as mills prepare to ramp up output after the end of winter curbs. And now President Donald Trump has slapped 25 percent tariffs on U.S. imports, with some exemptions, stoking concerns that steel blocked by the move could wash back into global markets.

A growing fear too is that retaliation from countries targeted by the tariffs will spill over into other products and escalate into a global trade war, hurting the world economy and demand for everything from copper to crude oil. China, the biggest consumer of commodities, has already said it will take “strong” measures to protect its interests.

Futures for steel reinforcement bar, a benchmark product used in construction, plunged 7.8 percent this week in Shanghai, the worst performance in about a year. Shares of Baoshan Iron & Steel Co., the listed unit of China’s biggest producer, lost 13 percent in the past two weeks, including a 3 percent drop on Friday after Trump signed the order. Shares of other Asian steelmakers were down on Friday too, with Posco sliding 3.6 percent in Seoul.

Analysts in China attribute the decline in prices to mounting inventories, rather than the Trump tariffs. “Demand hasn’t rebounded as much as the market was expecting, causing stockpiles of steel to rise rapidly,” said Zhao Xiaobo, an analyst at Chinese brokerage Sinosteel Futures Co. “Worries about the high levels of inventory will continue to plague the market.”

Stockpiles of reinforcement bar have more than tripled since December to 9.64 million tons, the highest since 2013, according to Shanghai Steelhome E-Commerce Co. The winter curbs on output are set to expire next week after being in place for four months, allowing producers to increase operating rates.

The tariffs add to the bearish mood. The China Iron & Steel Association has called on the government to adopt countermeasures against U.S. steel as well as coal, agricultural and consumer electronic products, according to a statement, while the Japanese steel federation has expressed fears about the impact on the global steel trade and the world economy.

Countries and companies may seek tariff relief. Australian Trade Minister Steve Ciobo said his government “made very concrete representations” to the Trump administration about why the country should be exempt. Japan has also said it will continue to speak to the U.S. about being excluded.

“Tariff protection for U.S. steel makers is a negative development for steel prices,” BMI Research said in a report. “We expect the first quarter will be the high watermark for prices in the year.”

Trump also slapped 10 percent tariffs on aluminum. China produces more than half of global supply and accounts for a much larger share of U.S. imports than for steel. But market reaction was muted. While aluminum in London has fallen 8 percent from a December high, it was little changed on Friday. Shares of Aluminum Corp. of China Ltd. were up 0.2 percent in Hong Kong.

Source: Bloomberg

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