China's steelmakers are about to struggle even more. Vietnam and South Korea have each announced tariffs on Chinese steel, reducing its price competitiveness. While these tariffs are temporary, the pain will be acute since the countries are China's largest export markets for steel. S&P Global Ratings anticipates signs of the added stress to emerge as early as the second quarter of this year, sooner than we first expected.

We forecast China's export volume will drop by 15%-20% in 2025, from 110.7 million metric tons (mt) in 2024, which was the second-highest level on record (see chart 1). In our view, export volumes will be likely be influenced by: (1) the sustainability of tariff policies; and (2) the spread between the domestic steel prices of importers versus China's export prices.

Chart 1

It's possible that some of the steel exports could be returned to China, intensifying the industry's oversupply situation. In turn, this would undermine domestic steel prices and squeeze the already-weak profitability of Chinese steelmakers. The industry could face a bigger hit if the three-month tariffs evolve into longer-term measures.

Despite the rising risks from trade friction, we believe domestic demand and supply-side controls remain the key drivers for China's steel industry.

A Price Squeeze Is Coming

Vietnam and South Korea, which collectively account for nearly 20% of China's total steel exports, have initiated the temporary implementation of high anti-dumping duties ranging from 20%-38%. This could undermine the price competitiveness of Chinese steel products in these markets (see charts 2-3) and lower export volumes. Medium and thick plates and hot-rolled coils are the key targeted products under South Korea and Vietnam's tariff actions.

Steel trade flows in the Asian market will also change as the result of the U.S. steel tariffs on its key trading partners. Asian countries' steel exports to the U.S. may be redirected to other countries, which will add to oversupply and increase the downside pressure on export prices.

Chart 2

Chart 3

Among our rated steelmakers, China Baowu Steel Group Corp. Ltd. (Baowu; A-/Stable/--) and several of its subsidiaries are subject to a 28% tariff from Vietnam and South Korea. Among the subsidiaries, Baoshan Iron & Steel Co. Ltd. (Baosteel; A-/Stable/--) has the highest exposure to exports, at around 11% of its total volume in 2023--half of which it exported to Southeast Asia and East Asia. Thick plates for automobiles are Baosteel's key export products, and these are also subject to tariff action. Other subsidiaries of Baowu have minimal export exposure of less than 5% of their revenue.

Watch Out For Indirect Effects

The direct impact of U.S. tariffs on China steel will be limited. China steel accounted for just 0.8% of the steel that the U.S. imported in 2024. Most of China's steel products have already been effectively blocked from entering the U.S. market since a 25% import tariff was levied in 2018.

The indirect impact of the U.S. tariffs should be generally manageable, in our view. These include the knock-on effects on China's steel exports to other countries and U.S. trading actions on other Chinese products, which are the end-user for the steel industry. The tariffs may ultimately have an overall negative impact on China's macroeconomic growth. Our baseline macroeconomic forecast for China already factors in an additional 20% U.S. tariff on all goods imported from China.

U.S. steel tariffs on other Asian countries are partly due to China's re-routing of its steel products via intermediary countries. While it is hard to quantify, some of key steel exporters to the U.S, such as Japan, South Korea, Vietnam, Mexico, and Brazil, are key export destinations of China steel exports. Consequently, the U.S. tariff will further obstruct the trade flow of China's steel to Southeast Asian countries. South Korea exported 2.8 mt of steel products to the U.S. in 2024 while it imported 8.2 mt from China.

Further, the 20% U.S. tariff hike on all Chinese goods could influence downstream steel demand from the manufacturing sector, including automotive and machinery. These two segments contribute to over a quarter of China's total steel downstream use (see chart 4). But their overall exposure to the U.S is not material, at less than 5% (see charts 5-6).

Potential U.S. measures targeting China's growing dominance in global maritime sectors may also impede steel sales for shipbuilding over the longer term. We don't expect any impact for the next 12-18 months.

Chart 4

Weak Domestic Demand And Overcapacity Remain Key Drivers

Exports represented just 10% of China's total steel output in 2024. A bigger problem is the weakness in the property market and moderating infrastructure growth that continue to weigh heavily on steel demand.

Potential introduction of stimulus measure from the government and stricter production control may help to revive demand and ease over supply.

But exports still matter. Amid a struggling domestic market, exports are a good escape valve.

Appendix

Editor's note

S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings).

Related Research

• Growth Prospects Strained After The U.S. Takes The Tariff Plunge, March 5, 2025
• Economic Outlook Asia-Pacific Q1 2025: U.S. Trade Shift Blurs The Horizon, Nov. 24, 2024
• How Would China Fare Under 60% U.S. Tariffs?, Nov. 17, 2024