[Reuters Analysis] Trump's steel tariffs imperil China's steel transshipment trade

• China's steel exports under heightened pressure
• Trump tariffs threaten transshipment estimated at $7 bln
• New U.S. tariffs bring wave of global steel trade barriers
• Pressure on exporters could ramp up competition in other markets

BEIJING/HANOI, Feb 27 (Reuters) - New U.S. steel tariffs are set to disrupt a multi-billion dollar supply chain moving steel from China to the United States via third countries, ratcheting up competition in the global market and undercutting a vital source of sales for China's struggling steel sector.

Since trade barriers in 2016 and 2018 priced most Chinese steel out of the U.S., mills in countries with relatively freer access have bought cheap Chinese steel and sold it on to the United States after various degrees of processing.

U.S. President Donald Trump's 25% steel duty, which comes into force on March 12, will hamper this trade, according to China's four leading steel consultancies, hitting sales estimated at almost a tenth of all Chinese steel exports last year, worth roughly $7 billion.

The prospect of this steel instead flowing onto a global market already awash with Chinese steel is triggering another wave of protectionism, much of it aimed at China in a further blow to its exports.

"The mounting trade frictions will add pressure on China's steel exports," state-backed research house China Metallurgical Industry Planning and Research Institute said in a note last week. "Lower exports and profits may lead to a further decline in the profitability of some companies."

More trade barriers and fiercer competition over a smaller export pie is a problem for all steel-exporting countries, but is especially tough for China's steel sector which is likely to be disproportionately targeted by tariffs.

Such a scenario could further undermine China's economic recovery as it has used overseas sales to help offset faltering demand at home because of a protracted property crisis.

A Chinese steel trader told Reuters orders for delivery around the normally busy first quarter were "pitifully low" even before Trump signed the tariffs into law in anticipation of the decision.

"The export orders that we have received for shipments in March and April have fallen by 20%-30% from the same period in 2024," the trader said on condition of anonymity as they are not authorised to speak to media.

Competition for other markets including the Middle East will likely heat up further as more Chinese steel floods into the region, one of the last without major barriers to Chinese steel. Lower prices there may in turn breed a new epicentre for transshipment.

PINNING DOWN TRANSSHIPMENT

China exported a tiny amount of steel to the United States last year even as its total exports hit a nine-year high.

The White House called out these record exports in its rationale for the new tariffs. Cheap Chinese steel was displacing production in other countries into the United States or was being transshipped into the country, it said, in a statement that singled out Mexico as a potential case of transshipment.

While the exact definition and therefore size of the transshipment market is murky, Reuters estimates it at around 8.6 million tons, or 8% of China's total steel exports last year, based on data from First Futures.

What is clear is that major steel exporters to the United States like Mexico, Vietnam and Brazil have also imported growing quantities of Chinese steel.

Last year, U.S. steel imports from Vietnam surged 143.4% year-on-year. Vietnam topped others to account for 11.5% of China's total steel exports, data from Chinese customs and the American Iron and Steel Institute showed.

"It's lucrative for transshipment via Vietnam as U.S. tariffs on Chinese steel are ten times of that on Vietnam," analysts at Chinese steel consultancy Mysteel said in a note this month.

A STEEL TRADE WAR

China's top steel association said this month the new U.S. tariffs could cause other countries to follow suit, which would hurt the competitiveness of China's steel exports.

Justifying those fears, Vietnam and South Korea announced new duties against some Chinese steel products in the weeks after Trump's announcement. India and the European Union have also said they may consider new tariffs and protections.

"Many countries will likely enhance their protection measures following the U.S. move, making it harder for steel exporting countries like Vietnam," said Do Ngoc Hung, Vietnam's trade envoy to the U.S.

China steel exports from 2015 to 2025 https://tmsnrt.rs/3XhrNzt

The comparison of U.S. steel imports and China steel exports https://tmsnrt.rs/3XiZAZ5