Industries to Watch: Will Slowing Chinese Growth Affect Steel Producers?

Domestic steel producers and many industries downstream have performed well in recent years, and there is no indication that major players therein face imminent solvency struggles. However, the world’s top steel consumer, China, continues to report declining growth levels. That could pose eventual challenges for those connected to the steel industry, especially in countries outside of the United States whose economies are not so diverse. Still, it bears watching whether several positive points domestically (the auto industry, an eventual real estate recovery, infrastructure) will counter what looks to be an ongoing weakness in China.  

A credit crunch for steel could become a problem if the Chinese economy continues to grow at a slower pace than the world’s exporters are accustomed to, if not dependant upon, said a steel industry expert in an NACM interview this week. The reduced importing activity on China’s end and the potential for dumping of steel (selling at a lower price than domestic production costs—defrayed in part by alleged illegal government subsidies) isn’t the only area of concern from a sales and pricing standpoint. Product dumping could reduce prices both domestically and in foreign markets to which both U.S. and Chinese producers sell. A recent example of this is the solar panel production industry. The steel expert, who wished to remain anonymous, said there is no sign of slowing production on the part of Chinese producers, meaning they will likely look for increased sales in other markets. “If there’s a slowdown in China, that’s going to slow things down for everyone else. The Chinese could begin to subsidize those sales, meaning you’re not on an even playing field here.”

Bruce Nathan, Esq., a partner with Lowenstein Sandler LLP, notes there appears to be no known solvency problems among key industry players domestically. However, he believes a glut, should one occur, could pose problems, as could the ongoing drop in energy prices.

“With the energy issue and the price per barrel continuing to dip, we have to remember that all those producers use steel in their production rigs, and a lot of it,” Nathan said.

Still, both sources noted that a number of positive factors could help maintain strength among domestic producers. Perhaps the biggest is the long-anticipated rebound of the housing industry. With employment and the overall domestic economy improving, along with the presence of an existing housing stock that doesn’t match the changing tastes of key homebuyer demographics, the rebound could be the closest since last decade’s real estate crash.

In addition, the automotive industry continues to be a bright spot within the U.S. economy, said Deborah Thorne, Esq., a partner with Barnes & Thornburg LLP. “It’s been a good couple of years here for auto, and it is doing really well here again,” said Thorne, who is based in the Chicago area. “So, steel fabricators are doing pretty well.”

Also, NACM Secured Transaction Services’ Chris Ring believes another positive wild card in the mix for steel producers is the crumbling U.S. infrastructure: bridges and rail lines are in disrepair throughout the country, and lawmakers will only be able to kick the can down the road for so long, without addressing that.

- Brian Shappell, CBA, CICP, NACM managing editor

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