As China’s housing market slumps, Australia’s iron ore budget bonanza is unlikely to last

The grim state of China’s housing market has so far had little effect on the iron ore price because its steel mills are diverting their surplus output onto export markets where they are adding to what the OECD is says is a crisis of excess steel supply.

While the Australian budget is reaping a bonanza, Western steel mills, including Australia’s Bluescope Steel at Port Kembla and the Whyalla Steelworks, are coming under pressure.

Steel has for decades been one of the most politically sensitive international markets and the surge in China’s steel exports will contribute to an increasingly acrimonious international trade environment over the year ahead.

China’s mills shipped 90 million tonnes of steel to export markets last year, a 36% increase from the previous year and the highest since 2016. China’s steel exports were equivalent to Japan’s total steel production.

‘The ongoing steel excess capacity crisis is currently escalating,’ the OECD said in a review of the industry. The 57 million tonnes of new capacity added last year was the highest in a decade, despite actual sales of steel falling 2.5%. China accounted for just under half the new capacity while Chinese mills are also investing heavily in new capacity in ASEAN nations.

‘The bleak outlook for steel demand and the increasing relocation of steel capacity from China to other regions create a worrying outlook for the coming years. This is also a major obstacle to achieving steel decarbonisation targets,’ the OECD report said.