China's rising prices, production cuts keep steel exports down in Jan-Feb

China's steel exports in Jan-Feb'22 dropped almost 19% y-o-y to 8.23 million tonnes (mnt) against 10.14 mnt recorded in the same two months of the previous calendar, as per data from China's General Administration of Customs.

Steel exports fell as China's domestic steel prices, which had been bottoming out as a result of interest rate cuts and economic stimulus measures, started to recover in February post-Lunar holidays. In fact, the hot rolled coils (HRC) market started to rise sharply after the Chinese New Year, making mills focus more on the domestic market which fetched lucrative margins.

That apart, China's production cuts continued into the first two months of the current calendar, leaving not much room for exports. Overall, steel output cuts continued in northern China in a bid to tackle winter smog and to also ensure blue skies during the Winter Olympics in February. That apart, the Lunar holidays in February also ensured a market lull.

The production cuts led to depletion in inventories which lent support to prices. For instance, in the second week of February, the world's largest steelmaker, Baosteel, hiked HRC prices by RMB 350/t ($55/t). Shagang increased construction steel prices by RMB 100/t ($16/t), amongst others.

Steel imports

In fact, China's imports of steel in the first two months of the year also fell, by over 8% to 2.21 mnt against 2.40 mnt seen in the year-ago period, mainly influenced by the slow recovery in its real estate sector from the beginning of January. Construction steel accounts for around 50% of China's domestic steel demand.

Imports also dropped off against the backdrop of the production cuts targeted to help China achieve its decarbonisation goals.

Iron ore imports

China's iron ore imports fell a marginal 0.24% to 181.08 mnt against 181.51 mnt in the period under review on tepid buying interest from mills. The fall is again linked to its production cuts. Although iron ore prices had risen on hopes that there would be a rebound in demand post-Games and holidays. However, the government had been quick to intervene to quell a sharp rise in the same.

Coal imports

Coal and lignite imports dropped almost 14% to 35.39 mnt against 41.13 mnt y-o-y in the period under review.

Slide in supply from Indonesia, the runaway imported coal inflation and better domestic production sustaining from end of last year led to the drop in coal imports.

Indonesia's one-month ban on thermal coal exports (to meet its domestic market obligations amid restricted production) kept China hungry for coal but there was no supply.

China imported 3.23 mnt of coking coal in February, up 3.5% from 3.12 mnt in January, according to Chinese customs data. January-February imports fell 58% y-o-y to 6.35 mnt.

Outlook

Market sources expected China's steel export to stage a rebound as South East Asia shows a propensity to buy. On the other hand, finished steel imports are expected to continue falling in the coming months due to sluggish domestic demand caused by the slowdown in China's property investment.

Steam coal imports may rise since China's pent-up demand has been unleashed as its thermal power plants show a gargantuan appetite for non-coking coal. However, the heated up prices could be a factor to watch out for. In coking coal, the steel output curbs will be factored in which may not see imports of the same rising sharply.