There was a record, and now there could be a collapse. Chinese steel will be hit in the trade war

Analysts and traders interviewed by Reuters forecast second-quarter shipments from the world's largest steel producer and exporter to fall by as much as a fifth from the first quarter. They expect exports to deteriorate later in the year.

Two blows to Chinese steel

Steel exports have been dealt a double blow, as Washington's tariffs restrict the transshipment trade in which third countries resell Chinese steel to the U.S. , while major customers such as South Korea and Vietnam impose their own tariffs to avoid the diversion and dumping of steel into their markets.

" It is certain that overall exports will decline in the second quarter," a Chinese steel trader told Reuters, requesting anonymity.

"You can look at the Middle East, Africa and South America as alternative markets, but the problem is that no country can absorb such huge exports," he added.

Any decline in exports will funnel steel back to China, driving down prices, reducing steelmakers' profitability and reducing their appetite for raw materials such as iron ore.

Exports in the first quarter of this year hit their highest level since 2016 as mills rushed to get steel out of the country before the then-foreseeable tariffs were announced.

While the steel industry had long expected near-record exports would eventually trigger some backlash, the scale of protectionism unleashed by the trade war between Washington and Beijing has surprised many.

Will Trade War Spill Over to Electrics and Other Products?

The chairman of China's largest steelmaker, Baosteel, said late last month that the steel sector's exports were facing unprecedented pressure and that more steel left at home would exacerbate oversupply.

" The trade war could spill over into products that rely heavily on steel , such as electric vehicles or household appliances, weakening another major source of steel demand outside the real estate sector," Ge Xin, deputy director at consultancy Lange Steel, told Reuters.