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Commodities

Asia's steel and plastic prices slump as trade war takes toll

Excess output from China slowdown spills into neighboring markets

A steel plant in Hefei, China. Domestic demand for steel has waned during the trade war, undercutting prices in the region.   © Reuters

TOKYO -- The price of industrial materials has dropped sharply as China's economy slows in the wake of the yearlong trade war with the U.S.

Hot-rolled steel coil, used in cars and industrial machinery, now hovers at $550 per ton for East Asia-bound shipments, down 10% over a year. The price declined sharply last fall as the trade war intensified. ABS plastic, used in exteriors for consumer electronics, has fared even worse, dropping nearly 30% from a year earlier.

China's economy has taken a hit as additional U.S. tariffs on Chinese products depress exports, which account for a fifth of the country's GDP.  China's official purchasing managers' index for the manufacturing sector fell below the boom-or-bust line of 50 for the second consecutive month in June.

Even as demand softens -- China accounts for roughly half of global steel consumption -- its crude steel production remains high, with the excess product flowing to East Asian markets. China's export by volume between January and May climbed by 2.5% from the year-earlier period.

Japan's steel industry is taking a direct hit. During the first five months of the year, steel imports from China soared 73% from a year earlier. The inventory of thin steel sheets at the end of May hit a 10-year high of 4.62 million tons.

The U.S. raised tariffs on $200 billion of Chinese products to 25% from 10% in May, a move that risked undercutting Chinese exports of consumer electronics and general goods to American shores. This is currently the period when Chinese manufacturers purchase more plastics to prepare for the holiday season. But this year "moves to procure in China are slow," said a source at a Japanese plastics maker.

U.S. President Donald Trump agreed to postpone an additional round of tariff hikes when he met Chinese President Xi Jinping at the Group of 20 summit in Osaka late last month. However, the market is still wary of new tariffs that could undermine demand for materials.

The price for one 32-inch liquid crystal display panel with no backlight runs approximately $40. Prices jumped temporarily at the beginning of spring due to a perceived shortage, then tumbled in May.

It appears that Chinese television makers are holding off on purchasing materials. Any additional duties imposed by Washington would raise prices for TVs in U.S., which would depress exports to that market.

China is also responsible for half the global demand for copper, considered a leading economic indicator. Three-month futures for copper stands at about $5,900 per ton on the London Metal Exchange, down 5% from a year earlier.

Copper is starting to gain this month amid speculation of U.S. interest rate cuts, but analysts still see the upside as limited.

"China's real economy is doing poorly," said a researcher at Mizuho Bank's derivatives unit, citing slow auto sales.

The price of oil, which sits below its level from a year earlier, also reflects concerns of a slowing global economy against the backdrop of the trade war. Tensions between the U.S. and Iran factor into the dynamic as well.

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