• China layoffs could provide relief to global steel industry, sector-related ETFs
  • 1.8 million workers in the coal and steel industries may be laid off
  • China, which produces half the world’s steel, exported a record 112 million tons of steel in 2015

China recently announced the largest layoff in history as part of a shifting economic model to focus on domestic demand. The layoffs, though, could provide some relief to the beleaguered global steel industry and sector-related exchange traded funds.

Over the past two days, the Market Vectors Steel ETF (NYSEArca: SLX) surged 8.5% and the SPDR Metals & Mining ETF (NYSEArca: XME) jumped 7.6% on prospects of lower Chinese output.

China revealed on Monday it could lay off 1.8 million workers in the coal and steel industries, or about 15% of the workforce, in an attempt to diminish industrial overcapacity, Reuters reported. According to the National Bureau of Statistics, China employs about 12 million workers in coal and steel.

The Chinese economy has relied on heavy state investment in export-oriented manufacturing industries for decades. However, the government may have over-invested, which has led to the capacity glut in the heavy industrial sector and the ongoing declines in prices.

China, which produces half the world’s steel, exported a record 112 million tons of steel in 2015, or the equivalent of North America’s output, and the emerging market has been accused of dumping on world markets, Reuters reported.

With the global economy slowing, China is finding a hard time selling its exports, and Beijing is now making an active effort to shift away from an export-oriented economy toward domestic consumption.

As China begins to idle its steel capacity, global steel makers may begin to see higher prices and improved margins.

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