Two weeks ago, when looking at the latest import price index data, we showed something disturbing: China has become an all out exporter of deflation. As the chart below shows, In November, import prices from China decreased 1.5% over the past 12 months, the largest year-over-year drop since the index declined 1.7% for the year ended in January 2010.

How did this happen? As we explained, with all of its domestic markets fully saturated, China has had no choice but to export its soaring commodity production as we explained in “Behold The Deflationary Wave: How China Is Flooding The World With Its Unwanted Commodities.” 

As we noted then, shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs.That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.

Logically, the less domestic demand for steel, and the greater China’s steel exports, the lower the price continues to tumble, now at a 10 year low.

That’s
because mills, smelters and refiners are producing more than they need
amid slowing domestic demand, and shipping the excess overseas. 

The flood of Chinese supplies is roiling manufacturers around the world and exacerbating trade frictions. The steel market is being overwhelmed with metal from China’s government-owned and state-supported producers, a collection of industry associations have said. The nine groups, including Eurofer and the American Iron and Steel Institute, said there is almost 700 million tons of excess capacity around the world, with the Asian nation contributing as much as 425 million tons.

According to Macquarie’s Colin Hamilton, head of commodities research, it is about to get even worse: the price of hot-rolled coil, used in everything from fridges to freight containers, may decline about 13 percent next year. The nation’s steel exports, which have ballooned to more than 100 million metric tons this year, may stay at those levels for the rest of the decade as infrastructure and construction demand continues to falter.