International credit ratings agency Fitch Ratings has stated that the third consecutive monthly fall in Chinese steel exports in February this year is temporary and the result of a short-term steel deficit caused by government policy. In February this year, China's steel exports declined by 29.1 percent year on year and by 22.5 percent month on month to 5.75 million mt.
According to Fitch, China began a crackdown on sub-standard steel in December 2016. This steel is known as 'detiaogang' and is mainly produced from scrap for construction use by small steel mills. The government aims to eliminate detiaogang from the Chinese steel market by the end of June this year. In addition, the Chinese government had instated temporary steel production cuts to control pollution ahead and during China's annual sessions of the National People's Congress (NPC) and the Chinese People's Political Consultative Conference (CPPCC), which took place in March. Accordingly, Fitch stated that these two policy measures led to a temporary supply squeeze in the steel market and a decline in exports.
Meanwhile, the credit ratings agency expects current steel prices to fuel additional restarts of previously idled capacities in China, and, with already over-capacitated sector fundamentals, the market will re-adjust to the temporary deficit situation in the next three to six months and this should increase steel exports and help moderate prices.