World Economy

Steel Faces Worst Week in a Year

Futures for steel reinforcement bar plunged 7.8% this week in ShanghaiFutures for steel reinforcement bar plunged 7.8% this week in Shanghai

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 US 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% tariffs on US imports, with some exemptions, stoking concerns that steel blocked by the move could wash back into global markets, Bloomberg reported.

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% 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% in the past two weeks, including a 3% drop on Friday after Trump signed the order. Shares of other Asian steelmakers were down on Friday too, with Posco sliding 3.6% 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 US 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.

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

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