China: Middle East and Africa emerges as key steel export destination in Jan-Sep'22
China’s steel exports dip 3% in 9MCY22 SE Asia, other regions losing appetite for imports amid inflation Steel exports from China show declining trend Morning Brief...
- China's steel exports dip 3% in 9MCY22
- SE Asia, other regions losing appetite for imports amid inflation
- Steel exports from China show declining trend
Morning Brief: China's steel exports to the Middle East rose a significant 22% over January-September, 2022, as per China Customs data maintained with SteelMint. This geography is emerging as an important export destination for the world's largest steel producer as it grapples with a real estate market turmoil, Covid outbreaks and decarb policy-driven production cuts.
Over January-September, 2022 (9MCY22), China's steel exports dipped 3% y-o-y to 51 million tonnes against 52.8 mnt in the corresponding period last year (CPLY). This scenario is in keeping with the overall trend of falling steel exports from China. The first half saw steel exports dropping 11% y-o-y and thereafter the downtrend has persisted amid falling global steel demand induced by inflation.
Middle East and Africa
The numbers show that exports to Saudi Arabia, in particular, over January-September, 2022 were at 13.60 mnt against 11.1 mnt in CPLY, a significant 22% rise y-o-y.
Heightened infrastructure development activity in this entire region is warranting this extra procurement from China, SteelMint understands.
The Covid-19 pandemic severely affected the construction industry and associated equipment demand across the Middle East and Africa in 2020. This was primarily attributed to disruptions in the supply chain, reduced investment in new equipment procurement, halt and postponement of construction projects, and unstable economic growth of many countries in this geography. However, since 2021, the construction industry across the Middle East and Africa has been witnessing significant growth in investment, which is likely to drive the market in future. Rising government investments in infrastructure development in the Middle East and Africa - in Saudi Arabia, Kuwait, Oman, the United Arab Emirates, and Egypt - are propelling steel demand.
South East Asia
On the other hand, South East Asia, although it retained its top spot as China's leading export destination, saw volumes dropping 4% to 15.20 mnt over January-September, 2022 compared to 15.80 mnt seen in CPLY. A key reason for the fall in volumes could be the additional capacities that have come up in this geography, many of which are Chinese-owned. End-users here preferred to procure domestically rather than import. Vietnam's slow post-Covid recovery, and preference for domestic material slowed imports. Inflation and liquidity tightening by governments are also keeping demand down.
East Asia
East Asia, comprising Japan, Korea and Taiwan, saw a 23% y-o-y drop in Chinese steel imports to 6.30 mnt against 8.20 mnt seen in CPLY although volumes were the third-highest. Japan has been plagued by falling domestic demand due to inflation and the pandemic and has reached a scenario where it is more interested in exporting steel amid a sliding yen. In Korea, demand recovery in areas like construction and appliances is slow, sources inform.
Central & South America
Export volumes to this region showed a sharp 28% y-o-y decline to 5.40 mnt in the first nine months of the current year against 7.50 mnt in CPLY. Overall, steel demand is expected to decrease in this region. As per a report in GMK Centre, Alejandro Wagner, the Executive Director of Alacero noted that the international crisis caused by the Russian invasion of Ukraine turned out to be longer than expected. In this regard, the downward trend in steel consumption worldwide, including in Latin America, will continue until 2023.
South Asia
This region saw steel imports from China drop 8% y-o-y in January-September, 2022 to 2.70 mnt (3 mnt in CPLY). Natural calamities, liquidity crisis, rising power costs, sliding local currencies have majorly impacted steel-end use demand. Bangladesh and Pakistan in particular are experiencing subdued steel sentiments.
Europe
China's exports to Europe over January-September climbed 40% y-o-y although overall volumes share in the total is small. Exports were at 3.2 mnt (almost nudging 2021's full year figure of 3.23 mnt) compared to 2.30 mnt in CPLY. However, China attracts safeguard duties in Europe along with nil quotas. So, under normal circumstances, Europe would not be importing from here, except for semi-finished materials like slabs.
Europe is hemmed in by its own sanctions on Russia. And, with Ukraine struggling with war devastation and logistics, Europe is looking for alternate sourcing destinations.
Outlook
China's exports to Middle East and Africa are increasing and if this pace is sustained for the rest of the year, then this region can replace South East Asia as China's top exporting destination in 2022.
SteelMint expects China's exports to drop in 2022 to 60-62 mnt against 66 mnt in 2021, based on two points. One, the Chinese government is discouraging exports of commercial grade steel and focusing on high grade/high value materials instead. Secondly, the country's aggressive decarbonisation drive will ensure that its steel production will be lower than 2021's level of 1.03 billion tonnes, with a pronounced focus on domestic consumption.
