How Trade War between China and U.S. is causing Panic in Asia's Stainless Steel Market?

The escalating trade war between China and U.S. is contributing to fear of fall in stainless steel prices and a supply glut in Asian countries.

Stainless steel which has a wide range of uses including kitchen instruments, home appliances, and industrial machinery is majorly manufactured in China along with South Korea, Japan, and India.

China's excess supply and in-house protectionism

China's economic slowdown exacerbated by the trade dispute with U.S. has dampened the buying spirit of its stainless steel market that had previously been able to absorb even the excess supply. Consequently, some of its surplus stainless steel has been exported to the Asian markets of Japan and South Korea.

South Korea and Japan are already key stainless steel manufacturers and exporters. In 2018, both the countries have exported about 1.47 and 0.78 MnT of stainless steel respectively. Now with supplies coming from China also their market is being flooded as the domestic demand in both the countries is quite sluggish.

Apart from this, in Mar'19 China itself imposed anti-dumping duty on the imports of hot-rolled stainless steel coming from other countries including Japan. Thus, amid a glut of Chinese-made stainless steel, China's room for accepting import have narrowed causing fear amongst other Asian countries like Japan, South Korea, India, and Thailand to name a few.

Indonesia- an emerging hub of oversupply

Market participants are also worried about excess supply from Indonesia, where China's Tsingshan Holding Group, the world's largest stainless steel maker, began production in 2016. Tsingshan has since strengthened its output and export capacity in the Southeast Asian markets and products from the group's Indonesian plant are being shipped to South Korea and elsewhere.

In fact import of stainless steel from Indonesia into India has grown nearly nine times in FY19 against previous fiscal year. Hit by the exports from China and Indonesia, South Korean stainless steel exporters are searching for new destinations. The country can't even export to U.S. as it has been already slapped by an import quota from the States last year. Thus, South Korean stainless steel products are being exported to Japan and other markets. In 2018, Japan's stainless steel imports increased by 7% to 222,159 tonnes which ultimately led to inventory build-up and affected its domestic prices.

Japan is already suffering from demand-supply imbalance as although industries such as automobile and construction have a steady appetite for stainless steel, the orders are stagnating when it comes to semiconductor production equipment, machine tools and other sectors that rely on exports to China.

Rising costs

Apart from a supply glut and sluggish demand, another key area of concern for stainless steel manufacturers in the Asian market is rising raw material costs. As per the industry participants, although manufacturers may raise the stainless steel prices due to the hike in the raw material price like nickel, it is likely that SS prices may stay level as hikes are offset by bearish factors such as increased inventories and weaker demand.