China: Middle East gains prominence among top 3 steel importers in CY'22

• Subdued home demand keeps exporters active in 2022
  
  
• Demand from SEA Asia turns tepid y-o-y
  
  
• China's exports seen falling in long term
  
  

Morning Brief: China's steel exports in calendar year 2022 (CY22) remained stable as per Customs data maintained with SteelMint. Volumes last year upped a negligible 1% to almost 68 million tonnes (mnt) from nearly 67 mnt in the preceding year.

The top three importers contribute 68% of the total exports out of China

Factors that kept volumes stable
The Russia-Ukraine war provided a one-off opportunity to export to offset the lack of home demand. But due to drop in global demand China's exports could not take off in a major way either.

Home consumption was subdued because of the Covid surge last year which, on the other hand, encouraged exports.

Thus, although export volumes were expected to drop 5-7 mnt in 2022, they did not.

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Southeast Asia
The data further reveals that although Southeast Asia retained its status as the leading importing geography, the growth rate rose a nominal 4% y-o-y. Volumes increased to 19.90 mnt last calendar compared to 19.19 mnt in 2021.

Vietnam, a traditional buyer of China's, saw its volume dip 3% y-o-y to 5.46 mnt (5.61 mnt in 2021). This Southeast Asian country's slow post-Covid recovery, dipping demand, and preference for domestic material slowed imports, forcing it to become an exporter itself for the last few months of 2022.

Inflation and liquidity tightening by other Southeast Asian governments also kept demand lower and imports limited within 2-10%.

Middle East and Africa
On the other hand, exports to the Middle East & Africa has been gaining prominence.

China's steel exports to the Middle East and Africa rose 23% in 2022. This geography is emerging as an important export destination for China, as it grapples with a real estate market crisis, unprecedented Covid surges, and policy-driven production cuts with an eye on its decarbonisation goals.

Overall, heightened infrastructure development activity in the Middle East is warranting this extra procurement from China.

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 Middle East and Africa has been witnessing significant investment growth, 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 and driving buyers to source from China at competitive prices.

East Asia
The third highest importer was Japan-South Korea-Taiwan (JKT), whose volumes fell 9% y-o-y to 8.70 mnt compared to 9.50 mnt in 2021.

Exports to Korea fell 9% to 6.40 mnt (7 mnt). With the country dependent on imports for most of its energy needs, rising fuel prices amid a weak won reigned in imports.

Outlook
China's crude steel production is expected to drop in 2023 although consumption will possibly rebound.

However, China's waning emphasis on exports of commercial grades - thanks to environmental issues - will likely lead to a drop in the same in the long term.

Also, the European Union's carbon tax policy will also impact China's steel exports. The European Commission's proposal for a carbon border adjustment mechanism (CBAM) will help it reduce carbon emissions, but negatively impact steel exports from developing countries such as China or even India.

China, in any case, aims to reduce commercial grades' sales overseas and concentrate on value-added, high margin special steel.