China's Jan-Oct'24 steel exports surpass 2023 levels. Who will tame the dragon?

• Slack demand, predatory pricing sustain volumes
  
  
• Importing regions' infra developments support China
  
  
• Dumping probes, Trumponomics to watch out for
  
  

Morning Brief: China's steel exports over January-October, 2024 (10MCY'24) surpassed the 90 million tonnes (mnt) seen for the entire year of 2023. Volumes spurted by around 22% to 92.10 mnt compared to 75.50 mnt seen in the corresponding period last year (CPLY), as per data maintained with BigMint.

Looking at October 2024 alone, exports surged to their second-highest notch on record in a single month to 11.20 mnt. Volumes spurted 41% y-o-y against 8 mnt in October 2023, remaining just below the September 2015 level.

China's region wise steel exports in 10M 2024

Country-wise exports

SE Asia remained the largest steel importer from China with volumes rising 27% y-o-y over January-October to over 28 mnt (around 22 mnt in CPLY). Most countries recorded healthy volumes intake due to some restocking activity as China went on a seven-day Golden Week national holiday from 1 October, although m-o-m some destinations experienced a decline.

Middle East & Africa too showed robust 27% y-o-y growth to 27 mnt (21 mnt) and 20% m-o-m as Chinese offers continued to remain attractive.

East Asia grew a modest 9% y-o-y to 11 mnt (9.45 mnt). Japan and Korea have seen m-o-m as well y-o-y drop in crude steel production amid dull home demand, which has also dulled imports hunger.

South Asia witnessed a 30% increase in January-October to 6 mnt (5 mnt) but a 1% dip m-o-m amid political unrests in Pakistan and Bangladesh. Plus, winter smog has been driving down construction activities in Pakistan, impacting rebar demand.

Factors pulling up exports

Sustained domestic demand decline: The sustained slowdown in domestic steel demand has continued to keep export levels inflated. Although there was a surge in offtake as well as prices in the aftermath of the September stimulus, this upturn was short-lived. In fact, the stimulus possibly encouraged mills to increase crude steel production m-o-m, which rose almost 3% to 82 mnt although the 10MCY'24 figure was down 3% to 851 mnt. The output increase also catalysed October exports.

Dumping at predatory pricing key to survival: Dumping steel across the world at predatory pricing has been the key survival tactic for Chinese mills and traders ever since the collapse of its housing construction sector from around 2020. BigMint data reveals, Chinese HRC FOB offers averaged $524/t in 10MCY'24 against the Japanese $553/t and Russians' $547/t. Indian offers remained stuck at $535/t over October-November. On a y-o-y basis, Chinese HRC export offers fell 13% in 10MCY'24 compared to CPLY.

Eroded profits create strong case for exports: The drop in the value of exports, coupled with declined home demand have been squeezing mills' margins. The overall profits earned by CISA's member mills tumbled 56% y-o-y to RMB 29.2 billion ($4.1 billion) over January-September, 2024, with 46% reporting losses, forcing the association to sound a warning bell last month on the production glut. But the production rebound was in response to the stimulus, which prompted a price rally, encouraging many steelmakers which had previously halted production amid losses to ramp up output rigorously again, leading to a slight inventory build-up till mid-October compared to a fortnight ago, creating a stronger case for exports. Late October inventories depleted to some extent.

Developing countries keep Chinese exports buoyant: A slew of developing regions, which are still building infrastructure on a huge scale, including Southeast Asia, the Middle East and South Asia, have been feeding China's voracious export appetite.

Vietnam which is a strong value-added steel supplier globally, can benefit from the over 2% global steel demand growth expected over the next couple of years. As per the Vietnam Steel Association, domestic demand is expected to increase by over 6% in 2024 while construction steel demand may climb up 8% amid a recovery in this segment from late 2023.

Where MENA (Middle East and North Africa) is concerned, worldsteel predicts a 6% increase in steel demand in the Gulf Cooperation Council (GCC) region, and 4% in North Africa. This uptrend is expected to sustain next year and beyond too on the back of a construction, real estate and housing boom as well as non-oil investments like cities, transportation, nuclear reactors, and myriad other mega developments running into trillions of dollars.

Outlook

While Chinese steel exports will sustain for some more time, these will most likely taper off in a couple of years, because of a few factors.

1) Importing geographies like Japan, Korea, Vietnam and India are feeling the brunt of excessive dumping from China, which is hurting their domestic mills. They are sharpening their anti-dumping blade too as is the EU. A growing protectionist trend globally will ensure Chinese dumping reaches a roadblock in future through such tariffs, and stiff carbon norms. As per the Chinese Ministry of Commerce, as many as 25 steel anti-dumping investigations have been initiated against the dragon this year, the most since 2016.

2) China itself would probably need to move away from exports of mass grades to cutting-edge, value-added products that will be low on volume but high on margins.

3) Although China is not a heavy steel exporter to the US, Trumponomics may also play a key role in curbing the Chinese onslaught and changing trade flows. So, this will be an area to watch out for.

Meanwhile, looking at the short term, Chinese steel exports will possibly rise over 20% to around 110 mnt this calendar.