China's May steel exports hit one-year high; but volumes to drop in H2

• Volumes across geographies spurt
  
  
• Stocking frenzy amid Russia-Ukraine war comes to China's aid
  
  
• Covid surge forces Chinese mills to scout overseas markets
  
  
• May could be a one-off performance
  
  

Morning Brief: China's steel exports in May 2022 touched a one-year high to 7.72 million tonnes (mnt), reveals SteelMint data. The last time volumes exceeded this level was in April 2021, at 7.97 mnt.

M-o-m, exports surged more than 56% against 4.94 mnt in April, 2022.

Over January-May, 2022, however, there was a 17% drop to 25.76 mnt against 31 mnt in the same period last calendar, essentially because China is moving away from exports of commercial grades in general.

Exports across geographies spurt
Data reveals that exports in May 2022 to all geographies increased, and to four regions by more than 50%. Exports to China's traditional export destination, South East Asia, was the highest and surged by 90% to 2.26 mnt against 1.18 mnt in April.

Volumes to the Middle East and Africa were the second highest, at 2.05 mnt (1.29 mnt), up 59% m-o-m.

East Asia saw volumes going up 45% m-o-m to 1.15 mnt (0.79 mnt).

Exports to South and Central America saw a sharp 69% m-o-m rise to 0.59 mnt (0.35 mnt).

The Asia Pacific saw a moderate 26% rise in the period under review to 0.47 mnt (0.37 mnt).

Volumes to Europe rose a modest 28% in this period to 0.51 mnt (0.40 mnt) and to South Asia by 11% to 0.36 mnt (0.32 mnt).

The North American region saw imports from China up a substantial 49% to 0.24 mnt (0.16 mnt) while exports to the CIS grew 21% to 78,000 tonnes (65,000 t).

Click here for detailed PDF on country-wise exports

Factors behind raised export levels in May 2022
The overall rise in the May volumes can be attributed to two factors:

Stocking up against war backdrop: As the Russia-Ukraine war continued into March and April, and the Black Sea blockade stalled trade that emanated from this region, countries across the globe pressed the panic button and scrambled to procure steel in large volumes. Supply uncertainty loomed as record high energy prices curtailed domestic production especially in the European Union, a region which traditionally imported the highest volume of steel from Russia and Ukraine.

In fact, SteelMint's data reveals that in 2021, Ukraine had exported its largest share of over 6 mnt in its overall 15 mnt of steel exports. Out of Russia's total steel exports of 30 mnt last calendar, those to the EU were the highest at 9 mnt.

Interestingly, China's exports to the EU rose a modest 28% when compared to other geographies. This was mainly because of import tariffs slapped by the EU on Chinese goods over the last few years. The gap created from low Chinese steel exports was made up by other countries like India, Korea and Japan, whose sales to the EU increased exponentially in May. With these countries engrossed in servicing the high-margin EU buyers, China moved in quickly to sell to the markets vacated by them, which led to an overall surge in exports across geographies.

However, China did export a good amount of steel slabs to the EU which can be categorized under 'semis' and are not included in the current export data.

Covid lockdown blues: China was ravaged by a Covid surge in May. This led to one of the strictest lockdowns, in pursuance of its zero-Covid strategy. With home demand at a nadir, China's steel mills focused hugely on exports to keep their cash registers ringing. In fact, Chinese mills offered at extremely competitive rates to attract buyers. Monthly average offers for benchmarked HRC material were at $810/t FOB (dropping from April's $901/t) compared to India's $864/t and Japan's $859/t.

Outlook
May 2022 could have been a one-off performance. Going into the second half of 2022, volumes are expected to drop in keeping with China's policy of lesser emphasis on commercial grade exports and a pronounced focus on high-margin, value-added items.

With a slew of infra projects launched recently, China would want its own steel to be used in such projects in the rest of the year instead of finding their way into global markets.