China says U.S. talks covered joint efforts on excess steel capacity

Seeking a more positive spin on U.S.-China economic talks viewed as ending in discord, China said on Thursday that the two sides agreed to "active and effective measures" to reduce global excess steel production capacity.

The statement issued a day after the talks by the Chinese embassy in Washington did not elaborate on the measures discussed by U.S. Commerce Secretary Wilbur Ross and Chinese Commerce Minister Zhong Shan on Wednesday.

"In this breakout session, the two sides focused their discussion on steel, aluminum and high-tech trade," the embassy said in a statement. "The two sides had in-depth discussion on cutting excess steel production capacity in the world and agreed to active and effective measures to jointly address this global issue."

A U.S. Commerce Department spokesman declined comment on the Chinese statement and referred Reuters to a joint statement from Ross and U.S. Treasury Secretary Steven Mnuchin. Their statement did not mention steel and cited only one point of consensus, a "shared objective" to work toward reducing the U.S. trade deficit with China.

Late on Wednesday, a Trump administration official told Reuters that China had refused to agree to U.S. demands that it eliminate excess steel capacity and take other steps to open its economy for foreign firms.

The first annual economic summit between the Trump administration and their Chinese counterparts ended with canceled news conferences, no joint statement and no new transaction announcements.

The Chinese embassy statement also said China agreed to "deepen its cooperation" with the United States on expanding trade in services. The two sides also will start work on a one-year economic cooperation plan, determining an "early harvest" as soon as possible.

Before the latest Chinese statement, U.S. Agriculture Secretary Sonny Perdue announced that China would allow imports of U.S. rice for the first time, agreeing to phytosanitary protocols.

Tougher Stances

The rocky dialogue session in Washington was a sharp contrast to U.S. President Donald Trump's rosy first meeting with Chinese President Xi Jinping at Trump's Mar-A-Lago, Florida estate in April.

Both sides found each other harder to deal with than expected, China trade experts said.

The Trump team's expectations that Beijing would agree to quick, substantial reforms to shrink the U.S. trade deficit and eliminate excess steelmaking capacity were dashed, while China found that further minor steps and vague action plans would no longer placate the U.S. side.

"There was a misalignment of expectations. The Americans pushed for deliverables, and the Chinese said no, everything is fine," said Scott Miller, an Asia trade expert at the Center for Strategic and Economic Studies in Washington. "These are difficult issues that don't lend themselves toward easy boxes to check."

Domestic politics contributed to both sides taking a tougher stance, said Eswar Prasad, a trade policy professor at Cornell University and former China division chief at the International Monetary Fund.

China faces a once-in-five-years Communist Party congress to set new leadership this autumn, while Trump is keen to hold to campaign promises to help ailing U.S. steel and coal industries and grow U.S. manufacturing jobs.

Prasad said that China found that the Trump administration is "no pushover" on trade and may need to offer bigger concessions to keep its relationship with its biggest trading partner on an even keel.

"The administration seems unwilling to settle for further symbolic, cosmetic victories in terms of access to China’s markets and is pressing for more specific and time-bound commitments from China about opening up its markets to U.S. exporters and investors," he added.

Source: Reuters

China's steel, aluminum output at record as U.S. mulls penalties

China churned out record amounts of steel and aluminum in June as producers rushed to cash-in on rallying prices in the wake of a drive by Beijing to crack down on output of low-grade metal.

That could fuel concerns the world's top steel producer will export more metal, stoking global oversupply and fanning tensions with the United States after it accused the nation of flooding international markets with cheap aluminum and steel.

U.S. President Donald Trump has threatened to use a Cold War-era law to restrict imports for national security reasons as bilateral talks between Washington and Beijing continue.

China has long-denied that it has been offloading metals abroad at the expense of foreign producers.

Chinese steel output last month rose 5.7 percent from the year before to a record 73.23 million tonnes, surpassing April's all-time high of 72.78 million tonnes, data from the National Statistics Bureau showed on Monday.

Aluminum production jumped 7.4 percent year-on-year to 2.93 million tonnes, exceeding December's record of 2.89 million tonnes.

Export data last week showed steel products shipments fell last month, while aluminum sales abroad were steady.

But analysts said the latest numbers should not be seen as provocative move ahead of a decision by the United States on possible import tariffs.

"It's wrong to think that this is some sort of unified, homogenous voice that is deliberately making some provocative statement to the U.S," said Paul Adkins, managing director of aluminum consultancy AZ China.

"That couldn't be further from the truth. What we're really seeing, if anything, is ... a lack of a coordinated response (from Chinese producers)."

Analysts said the increases came as local steel and aluminum prices rose after the government cut back on metals producing capacity earlier in the year as it battles a glut in supply and looks to clamp down on pollution.

"The reason that prices were higher in the first place was the expectation of Chinese cutting back supply of aluminum and steel, yet that is what is inducing its high utilization rates," said Mark Pervan, chief economist at AME Group in Sydney.

Steel rebar margins were almost 1,000 yuan ($147.77) per tonne in June, enticing mills to increase output, said Bai Jing, analyst at Galaxy Futures.

"China's crackdown on low-end steel has left a capacity gap in the market," she said.

In the first half of the year, China eliminated around 120 million tonnes of low-end steel capacity. By May, the country had fulfilled nearly 85 percent, or 42.4 million tonnes, of its 2016 steel capacity cutting target.

The data came as better-than-expected GDP numbers brightened demand prospects for metals and spurred gains in prices, with steel rebar rising 2 percent.

Source: Reuters

China clamps down on excess steel as Japan decries Trump 'protectionism'

Twenty-nine Chinese steel firms have had their licenses revoked as Beijing kept up its campaign to tackle overcapacity in the sector and days after U.S. President Donald Trump said he would open a probe into cheap steel exports from China and elsewhere.

Analysts say the revocations were unlikely to be a direct response to Trump's plan, but rather a part of China's reform measures aimed at reducing surplus steel capacity that many estimate at around 300 million tonnes, about three times Japan's annual output.

The official China Daily said Washington's move to investigate steel imports could trigger a trade dispute between the United States and its trading partners. In Japan, the world's second-biggest steel producer after China, the head of its steelmakers' group expressed concern over Trump's protectionist policy.

"We are greatly concerned over Trump's protectionism, although we hear he has softened his tone on some issues with a grasp of reality," Japan Iron and Steel Federation chairman Kosei Shindo told a news conference on Monday.

China's Ministry of Industry and Information Technology released a list on Monday of 29 firms that will be removed from its official register of steel enterprises. Most have already stopped producing steel, but some had illegally expanded production or violated state closure orders.

"It's all enveloped in this strategy to improve the financial condition of the industry which has been weighed down by excess capacity for some time, partly as a result of inefficient operations," said Daniel Hynes, commodity strategist at ANZ.

China is aiming to shed between 100 million to 150 million tonnes of excess capacity over the 2016-2020 period. It also plans to shut around 100 million tonnes of low-grade steel production by the end of June.

On Monday, another 40 steel firms have been asked to make changes in areas such as environmental protection and safety.

The majority of the companies were accused of failing to comply with emergency output restrictions during heavy pollution periods, and they must fully "rectify" their violations within a prescribed period, the industry ministry said, without giving a specific time frame.

Hynes said China may take a more gradual approach in shutting inefficient mills rather than force "a lot of closures at once" and cause a spike in steel prices, which is what happened in the third quarter last year.

China set up an official steel firm register in 2009 to impose order on the poorly regulated industry and to help companies during price negotiations with iron ore suppliers overseas.

The register was also supposed to identify the mergers and closures required to meet a target to put 60 percent of China's steel capacity in the hands of its 10 biggest producers by the end of 2015.

However, industry consolidation rates actually fell to 34.2 percent over the 2011-2015 period, from 48.6 percent in the previous five-year period, and China has now pushed back the 60 percent target until 2025.

According to figures published by the official China Metallurgical News earlier this month, 292 out of a total of 635 firms in 12 provinces and cities have already ceased production or shut down completely.

Source: Reuters

Steel, stimulus drive China's strongest economic growth since 2015

China's economy grew faster than expected in the first quarter as higher government infrastructure spending and a gravity-defying property boom helped boost industrial output by the most in over two years.

Growth of 6.9 percent was the fastest in six quarters, with forecast-beating March investment, retail sales and exports all suggesting the economy may carry solid momentum into spring.

But most analysts say the first quarter may be as good as it gets for China, and worry Beijing is still relying too heavily on stimulus and "old economy" growth drivers, primarily the steel industry and a property market that is overheating.

"The Chinese government has a tendency to rely on infrastructure development to sustain growth in the long term," economists at ANZ said in a note.

"The question is whether this investment-led model is sustainable as the authorities have trouble taming credit. We need to watch closely whether China’s top leadership will send a stronger signal to tighten monetary policy shortly."

Even as top officials vowed to crack down on debt risks, China's total social financing, a broad measure of credit and liquidity in the economy, reached a record 6.93 trillion yuan ($1 trillion) in the quarter -- roughly equivalent to the size of Mexico's economy.

Spending by the central and local governments rose 21 percent from a year earlier.

That helped goose the pace of growth in the first quarter well above the government's 2017 target of around 6.5 percent, and pipped economists' forecasts of 6.8 percent year-on-year.

Such a strong bolt from the gate could see Beijing once again meet its annual growth target, even if activity starts to fade later in the year, as many analysts widely expect.

"Main indicators were better than expected...which laid a good foundation for achieving the full-year growth goals," statistics spokesman Mao Shengyong said at a news conference.

SAME OLD GROWTH DRIVERS?

Once again, China's policymakers leaned on infrastructure and real estate investment to drive expansion. Growth in both areas has accelerated from last year and helped offset slightly weaker growth in the services sector.

"Faster growth in industrial output is the primary factor in the first quarter surprise, and due mostly to higher value-added growth related to supply-side consolidation in heavy industry," said Brian Jackson, China economist at IHS Global Insight.

Fixed asset investment rose 9.2 percent on-year, trouncing estimates, but IHS believes the growth was due entirely to faster spending in industry and construction.

Real estate investment remained robust, expanding 9.1 percent, while new construction quickened despite intensifying government measures to cool soaring home prices.

Most analysts agree the heated property market poses the single biggest risk to China's growth, but predict the cumulative weight of property curbs will eventually temper activity, not produce an outright crash.

"Sales (growth) has started falling, which means tightening measures are starting to take effect," said Shen Jianguang, an analyst at Mizuho Securities in Hong Kong.

More than two dozen cities announced property cooling measures in recent weeks, after curbs late last year appeared to have little lasting effect.

The construction boom has helped fuel the best profits for China's industrial firms in years, giving them more cash flow to pay down debt or invest in more efficient plants.

Buoyed by a near 12 percent increase in housing starts, China produced a record amount of steel in March, Reuters data showed. But analysts say warning signs are flashing.

Rising inventories and recent falls in steel prices suggest output is growing faster than China's demand, raising worries of a glut later in the year, which could heighten trade tensions with the U.S. and other major trading partners.

INCOME GROWTH PICKS UP

There were also positive signs on the consumer front.

After slowing for five quarters, disposable income growth picked up to 7.0 percent, the fastest since late 2015.

Retail sales rebounded 10.9 percent on-year as consumers shelled out more for appliances and furniture for new homes.

Auto sales also showed signs of recovering after weakening early in the year after the government reduced subsidies.

Analysts are closely watching for signs that consumption is accounting for a greater share of China's economy, which would

make growth more broad based but also reduce the need for more debt-fueled stimulus and reliance on "smokestack" industries.

Another bright spot was a further rebound in private investment, which had cooled in recent years, leaving the government to bear more of the burden of supporting the economy.

Private investment growth accelerated to 7.7 percent.

FOCUS ON STABILITY, THEN REFORMS

Though policymakers have pledged repeatedly to push reforms to head off financial risks, the government is keen to keep the economy on an even keel ahead of a major leadership transition later this year.

China's central bank has gingerly shifted to a tightening policy bias in recent months, and is using more targeted measures to contain risks after years of ultra-loose settings.

It has nudged up short-term interest rates several times already this year and further modest increases are expected, especially if U.S. rates continue to rise, which could risk a resurgence in capital outflows from China.

"I think China should be directing the economy to slow down its growth in the long term...but on the contrary, growth is accelerating," said Hidenobu Tokuda, senior economist at Mizuho Research Institute in Tokyo.

"This is good for now but it makes it difficult to see how China's economic slowdown will land in the future. Uncertainties remain high."

Source: Reuters