China may see a surge in steel exports in 2022

China is likely to see its steel exports surge in 2022, as the overseas steel demand will be strong due to that the global trade flows adjust to steel supply from Black Sean losses, Ian Roper, commodity strategist of Astris Advisory Japan KK, forecasted in his presentation given at the Singapore Iron Ore Forum on May 17.

According to him, Chinese steel exports will need to grow significantly this year to fulfill a global deficit caused by the loss of Black Sea steel exports (caused by the ongoing Russia-Ukraine conflict) on the seaborne market and European production issues given higher energy costs and raw materials losses.

"The world now needs China's steel exports to offset those loss … We will see steel be poured out of China by demand not supply push. It is gonna to be demand pull, and that normally happens with higher prices," Roper said.

However, while traders want to export steel, logistics difficulties as COVID-related controls have limited this trade for now.

On the other hand, with China stepping back from environmental controls, fewer power constraints and a weakening economy, it appears likely the government will not stand in the way of exports this year as it did last year. All of these are expected to result in more China's steel exports this year, according to Roper.

Nevertheless, he also noted that this is on the basis that China's domestic demand remains weak enough that the rise in exports doesn't cause serious domestic inflation issues.

However, there is a risk that should prices rise too rapidly Beijing may end up limiting exports, and this would just serve to push up ex-China prices even further, Roper warned.

China's steel net exports rose to over 40 million tonnes last year, from 15 million tonnes in 2020. Exports would have been higher given price spreads, but the volumes were limited by output controls in the second half year of 2021, Roper acknowledged.

In his speech, Roper also expected that Chinese steel prices may surge after the pandemic is fully under control on pent-up domestic demand and export demand. Additionally, many mills in China have drawn raw materials inventory to extreme lows, especially coke, which may hamper their ability to lift steel output and further steel price gains in the short term.

While for European and North American steel prices which have stabilized in recent weeks after surging $400/tonne since Black Sea exports become disrupted, as demand later in the year may suffer, prices may look sustainable into the summer as lead time remains long and inventory levels low.

So, in general, given the surging ex-China steel prices on the back of lost supply from the Black Sea, Chinese exports will be in strong demand, but the volumes are being held back by logistics controls currently.

In fact, as Chinese government discourages steel exports as well as previous closing gap between Chinese and overseas steel prices, the country's total steel exports only came in at 18.16 million tonnes over January-April, posting a sharp decline of 29.2% on year.

But in the last month, Chinese export volumes reached 4.98 million tonnes, having been slightly higher by 32,000 tonnes or 0.7% from the previous month, according to the statistics of China's General Administration of Customs (GACC), reflecting increasing demand for China-origin steel products after the global steel supply chain was disrupted by the Russia-Ukraine tension.

In 2021, China exported 66.9 million tonnes of finished steel in 2021, up 25% on year, as reported.

Written by Victoria Zou, zyongjia@mysteel.com

Note: This article has been published in accordance with an article exchange agreement between MySteel Global and SteelMint.