China is exporting more goods than ever, and its massive surplus is reaching Brazil at prices that local producers struggle to match. Steel shareholders are feeling the pressure first. However, part of the protective tariff umbrella is already in place, with the next regulatory decision due in December.
What Did China Disclose About Its Export Numbers?
According to data released by China's General Administration of Customs on Tuesday (10), the country's exports grew 35.2% year-over-year in October to $412.3 billion. Year-to-date, China accumulated a trade surplus of $1.04 trillion over the first ten months of 2026.
Over $1 trillion in trade surplus in just ten months. In 2025, that milestone was only reached in November.China Customs, October 2026 data
October's figures, however, reflect two distinct forces. The expansion was driven by global demand for artificial intelligence hardware and technology products, rather than just an oversupply of steel and vehicles. Growth also moderated during the month: the 35.2% increase came in below September's 36.3% rate, and the $105.28 billion monthly trade balance fell short of market expectations of $125.8 billion. Even so, the country remains on track to surpass its record $1.2 trillion surplus set in 2025. The core question for investors is why so much industrial output is looking for home markets abroad.
Why Is China Producing More Than It Can Consume at Home?
Because its economic model was built to do so. Speaking at the Alacero Summit 2026—a Latin American steel conference held in Mexico City—Peking University economics professor Michael Pettis argued that subsidized financing and state industrial policy allow Chinese manufacturers to keep operating even when facing financial losses. Factories that would be forced to close in Brazil continue running in China.
Domestic demand conditions explain the rest of the picture. In February, the IMF highlighted that the Chinese economy was dealing with weak domestic demand, ongoing weakness in real estate, and persistent deflationary pressures. In the steel sector, the imbalance is stark. According to OECD data presented by Alacero, global excess steel production capacity reached an estimated 640 million metric tons in 2025—with roughly 320 million metric tons located in China alone. Half of the world's excess capacity resides in a single country.
What makes this phenomenon "2.0" is the shift in export mix. Competition is no longer limited to low-cost, labor-intensive products: it now extends to electric vehicles, industrial machinery, and consumer electronics. So, how much of this inflow is already hitting Brazilian shores?
How Much Chinese Production Is Reaching Brazil?
An increasing share, and at a pace outstripping Brazil's exports to China. Data from Brazil's Secretariat of Foreign Trade (Secex/MDIC) shows the two trade directions widening in October:
| Brazil–China Trade | Oct 2025 | Oct 2026 | Change |
|---|---|---|---|
| Brazil Imports from China | $6.43B | $7.53B | +17.1% |
| Brazil Exports to China | $9.07B | $8.59B | -5.3% |
| Brazil Trade Surplus with China | $2.64B | $1.06B | -60% |
Year-to-date data confirms the broader trend: from January through October, Brazilian exports to China grew 10.0% to $93.104 billion, while imports from China rose 10.6% to $66.146 billion. Dependency has also grown. China's share of total Brazilian imports increased from 19.3% in the first ten months of 2018 to 26.4% over the same period in 2026. The shift is clearest in autos: according to the Brazil-China Business Council, imports of Chinese electric vehicles surged 341% by value to approximately $2.4 billion over nine months.
This surge comes at a time when Brazilian industry is already struggling. As noted in our coverage of the decline in industrial production reported by IBGE, domestic manufacturers do not have the operational cushion to absorb foreign competition. However, steel producers are feeling the impact first.
Which B3 Stocks Are Most Exposed, and How Much Does It Affect Earnings?
Steelmakers are hit first, though to varying degrees. The regional pressure is severe: according to Alacero, imported steel represented 43.5% of total apparent finished steel consumption in Latin America between January and August 2026, the highest level on record. Speaking at the same event, Gerdau CEO Gustavo Werneck noted that the WTO has proven ineffective at resolving trade distortions caused by unfair Chinese exports.
For investors, the critical question is how domestic steel pricing directly impacts each company's bottom line. Bank estimates published in February illustrate the varying sensitivities:
Based on these projections, a 1% change in domestic steel prices triggers an estimated 9% impact on Usiminas's EBITDA, compared to 2% for Gerdau and 1% for CSN. Usiminas, which relies heavily on flat steel sold domestically, is the most exposed to any price cuts driven by Chinese imports. Gerdau, by contrast, benefits from significant production assets in the United States, which helps diversify its earnings risk.
Trade defenses are already being deployed. In February, Brazil's executive trade board (Gecex) issued Resolution 854, imposing definitive anti-dumping duties for up to five years on imports of Chinese cold-rolled flat steel, building on prior measures targeting pre-painted steel. A decision on hot-rolled coil (HRC) remains pending. Analysts at XP expect an anti-dumping ruling on HRC by December, though they note its incremental market impact may be modest since Chinese imports have already started to slow. In other words, much of the policy protection has already been priced into equity valuations.
Across the broader equity market, the overall index impact remains contained. On the day the trade numbers circulated, the Ibovespa closed up 0.66% at 172,457 points. The shock remains sector-specific, particularly because China—while dumping cheap steel—remains the primary buyer of the soybeans, crude oil, and iron ore that support other major components of the index. That export demand, however, carries its own risks, as highlighted by China's temporary suspension of poultry imports from Santa Catarina.
Is There a Silver Lining for Investors?
Yes, though it lies outside the steel sector. Inexpensive imported goods help anchor domestic prices for manufactured products in Brazil, mitigating broader inflationary pressures. However, this disinflationary tailwind is only partial: opposing cost pressures persist, as seen in our analysis of oil prices climbing above $106 per barrel. For fixed-income investors, "imported deflation" from China ultimately supports lower interest rates down the road.
As for whether these trade pressures will ease, Pettis remains skeptical. He sees little likelihood of China significantly boosting domestic consumption in the near term, as doing so would require a fundamental restructuring of its economic model. Meanwhile, industrial groups are calling for broader trade barriers: Latin American steel producers are advocating for tariffs on imported vehicles, home appliances, and machinery originating from China. In practice, investors should weigh both sides of the balance sheet:
- Anti-dumping duties on flat steel are locked in for up to five years, with an upcoming December ruling on hot-rolled coil expected to round out protection.
- Chinese steel import volumes into Brazil have already begun to moderate following initial trade measures, according to XP.
- Brazilian commodity exporters continue to rely on China as their primary buyer.
- China's excess steel capacity—estimated at roughly 320 million metric tons—will not be absorbed by Brazilian tariffs alone.
- Import competition is broadening into vehicles, machinery, and electronics, where tariff protections remain limited.
- Brazil's trade surplus with China contracted in October, leaving pure-play domestic producers like Usiminas vulnerable to steel price erosion.
