5 among top 10 steel exporting countries register drop in H1 volumes

• Top 10 have 73% share in total global seaborne trade
  
  
• Sanctions-hit Russia out of picture
  
  
• Demand down in major consuming regions, H2 looks subdued
  
  

Morning Brief: Five of the top 10 steel exporting countries in the world have shown a drop in the first half (H1) or the January-June, 2023 period, reveals data maintained with SteelMint.

Total export volumes from the top 10 countries in H1 showed a marginal 3% increase to 112 million tonnes (mnt) compared to around 109 mnt in H1CY22.

The five which showed a y-o-y decrease include Turkey, India, Taiwan, Brazil and Germany. China, of course, led the show with a 30% increase. Vietnam and Italy showed a rise y-o-y. Japan remained flat while Korea upped a slight 3%.

The top 10 in 2022, with a cumulative 211 mnt, had more than 73% share in the entire global steel trade basket.

Overview of leading exporters

China depends on exports amid dull domestic demand: The largest producer and consumer of steel, China, showed a sharp 30% increase in H1 to nearly 44 mnt against 34 mnt in H12022. This is a considerable rise considering that China's exports in entire CY22 were at 67 mnt. Thus, the rate of growth in H1 was higher y-o-y as well as against 2022.

China had to fall back on exports in H1 because of some key factors:

1) Domestic demand was not up to expectations although it had jacked up production by 6.1% (worldsteel) over January-March this year after prolonged Covid cutbacks. But the property and construction sector, the largest consumer of steel, played spoilsport.

2) Keeping decarb goals in mind, the authorities have been tightening the noose on production with orders already issued for cuts in some regions. Stricter actions may be adopted in H2.

3) Thus, mills saddled with inventory and squeezed margins amid dull home demand, had to look overseas. They played in volumes by selling cheap, to capture the largest chunk of the overseas space. Price-sensitive markets like Vietnam and the Middle East were attracted to Chinese material.

India fails to match China's rock-bottom offers: India's exports fell a sharp 32% y-o-y to 4.70 mnt in H1 as against 7 mnt in H1CY22. China took away a large chunk of its markets in Vietnam and the Middle East by steadily dropping its offers which the Indian mills could not match. That apart, the European Union, which had been developed as a lucrative market during the Covid period, showed a sharp drop in demand amid inflation, sliding currencies and energy prices that were still high despite having come off their peak. The only comfort Indian mills drew was from the quotas. It was unable to fulfil its quotas to the EU over May-November last year because of the export tax. Once this duty was lifted (in November, 2022), mills rushed to fill this gap, especially since the EU allows unutilised volumes to be covered in the last quarter (April-June).

Turkiye volumes plunge 49% y-o-y: This country saw H1 volumes plunging 49% to 4.3 mnt (8.4 mnt).

1) One reason was the spiralling energy prices that hit mills' margins and production. Even though energy tariffs were reduced, these were not enough. In end-December 2022, Turkiye's energy market regular EPDK announced a 16% reduction in tariffs for industrial consumers in 2023. In January 2023, tariffs were further decreased 7-12%, but this was not enough to ease production costs. Even subsequent tariff reductions did not help mills as scrap prices had started rising from January, peaking to $453/t CFR in March. As a result, crude steel production took a sharp hit, down 19.1% over January-May, 2023.

2) Declined EU demand also hit Turkiye, known for supplying value-added steel to this region.

3) The devastating earthquake in February 2023 also worked against exports as some mills had to stall production for a few days. Subsequently, the country has had to focus on reconstruction.

Vietnam sees domestic demand drop, reaps benefit of falling prices: This Southeast Asian country became an avid exporter because of two key reasons. One was the slump in its property and construction sector, which made many experts forecast a gloomy domestic demand scenario for 2023. Secondly, the drop in global prices made Vietnamese hot rolled coil exports attractive to many buyers, including Indian. Volumes rose 10% to 4.8 mnt (4.4 mnt).

Japan & Korea: Exports from these two major steel-producing countries remained highly range-bound because both have been experiencing a lack of domestic demand as well as drop in crude steel production. Output in Japan was down 5.3% in January-May and by 0.4% in Korea. Still, their exports did not exactly fall, primarily because mills here deal in long-term contracts rather than spot trades.

Thus, Japan's exports remained static at around 15 mnt and Korea's upped an insignificant 3% to 12.3 mnt (11.9 mnt) y-o-y in H1.

Outlook

The global steel trade topography has changed significantly with a major contributor, sanctions-hit Russia, out of the picture.

China's exports may slow down in H2 as the government can adopt stricter production cut norms and whip up domestic demand. This will likely lead to lesser steel floated for exports and Indian mills can plug this gap.

Demand from the EU and US or even ASEAN is not expected to increase much in the remaining part of the year.

Thus, H2 may remain subdued for steel exporter countries.