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LONDON (Reuters) - China's exports of steel product have fallen sharply over the first few months of this year.
The January-May total was 34.2 million tonnes, down 26 percent on last year's equivalent figure and the lowest read since 2014.
The year-on-year drop in tonnage terms was 12.1 million, which is roughly what Canada, the world's 17th-largest producer, churned out over the full 12 months of 2016.
The only recent historical comparison for such a dramatic and sustained drop in steel exports was 2009, when demand in the rest of the world was imploding in the aftermath of the global financial crisis.
So what's happening this time around?
Is this a sign that China's much-hyped capacity closure program is finally starting to bear fruit?
The rest of the world's producers would love to think so but the evidence suggests things are a little more complicated.
Graphic on China's monthly exports of steel product:
Beijing does targets well and it's already way ahead of its goal for steel capacity closures this year.
A total 42.4 million tonnes were shut in the first five months of this year, representing 85 percent of the 50-million-tonne target, according to the National Development and Reform Commission.
That follows 65 million tonnes of closures last year and brings the running count to over 100 million tonnes, now well within the 100-150 million range originally promised by China over a five-year period.
The only problem is that these shutdowns have had no discernible impact on steel production.
China produced 72.78 million tonnes in April, an all-time record. Production eased very slightly to 72.26 million tonnes in May but that was still the second-highest production month after April.
This counterintuitive outcome is down to what exactly has been closed.
The initial round of capacity elimination appears to have included a large amount of non-productive capacity, an easy win for producers and local governments looking to fall into line with the new national policy.
A second focus has been on induction furnace operators. Such producers, using scrap rather than iron ore as their input and frequently accused of manufacturing sub-standard product, are largely unapproved and therefore "illegal" in the eyes of Beijing.
For that reason they are also unreported.
Millions of tonnes might be in the process of being closed but you won't see any ripple in the national production figures since they were never counted in the first place.
What is visible, though, is the resulting jump in profitability of the official steel sector.
The margin on construction-grade steel rebar has surged more than 800 percent this year to around 1,100 yuan ($162) per tonne in early June, according to data tracked by brokerage CLSA.
With that sort of money to be made, it should be no surprise that China's steel producers are running faster than ever before.
But quite evidently higher production has not fed into higher exports.
Is there some form of voluntary restraint at work here?
After all, China has recently been the subject of unprecedented political pressure to rein back its steel exports.
Trade cases are piling up thick and fast.
The European Union has just initiated another set of duties on Chinese steel, these ones on hot-rolled flat products, and the two entities are still dueling over the broader issues of Chinese overcapacity and, in Europe's eyes, over-exports.
Meanwhile, the mother of all sanction packages is looming in the United States, where the Trump administration has been investigating steel imports on national security grounds.
The so-called Section 232 probe is nearly done, according to U.S. officials.
China might reasonably be expected to have taken some of the heat out of the diplomatic storm by stemming the flow of exports.
Yet there is absolutely no sign of any build-up in steel inventory within China as might be expected if exports were being massaged by policymakers.
Local consultancy Steel Home estimates that stocks of rebar and flat products such as cold rolled coil have been falling in line with "normal" seasonal patterns.
Interestingly, those of rebar have fallen harder and faster than those of coil, attesting to a broader divergence in fortune between those mills servicing the construction sector and those feeding the manufacturing sector.
While the latter has been showing signs of weakness, construction is still booming.
True, there are all sorts of warning signs flashing in terms of overheating prices in parts of the country's residential property sector.
But investment in real estate, one of the broadest indicators published by the National Bureau of Statistics, is still running at an annual growth rate in excess of 6 percent, as has been the case since the most recent stimulus package kicked off at the start of last year.
Graphic on real estate investment: tmsnrt.rs/2tjvwN8
How long it can continue doing so is the subject of much debate among analysts.
The consensus narrative is that the construction sector will start losing momentum imminently before entering a period of much slower growth over the second half of this year.
A caveat to the consensus is that the strength and durability of the 2016 stimulus package have already surprised many commentators.
But neither building activity nor those supercharged profit margins are going to run indefinitely.
At some stage there will be a slowdown, which will feed quickly into the steel sector, and super-quickly if it coincides with seasonal weakness over the coming summer holiday season.
Don't expect China's steel producers to adapt supply fast enough. Their track record is poor when it comes to adjusting production to changes in demand tempo.
Rather, the pattern has tended to be for demand weakness to lead to falling prices, margin compression and accelerated exports.
Current low export levels are first and foremost down to strong domestic demand.
If that fades, Beijing's control over its leviathan steel sector and those politically toxic export flows is going to be put to the real test.
Editing by Dale Hudson