China's steel exports drop in Feb m-o-m; regains momentum in Mar-Apr

• Exports fall in Jan-Feb as mills target domestic sales, lured by higher prices
  
  
• Exports to SE Asia drop 26% in Feb m-o-m
  
  
• Middle East and Africa buy 29% less from China
  
  
• East Asia's imports from China see 11% m-o-m drop
  
  
• Imports by Korea rise on domestic crude steel production constraints, cost pressures
  
  
• Chinese exports may stay on higher side in Mar-Apr on dull domestic demand
  
  

Morning Brief: China's steel exports dropped 11% m-o-m in February, 2022 to 3.91 mnt against 4.33 mnt in January, 2022. Total exports in January-February, 2022 were down 19% to 8.18 mnt y-o-y against 10.14 mnt in the same period in 2021. Y-o-y, February exports showed a 20% drop against 4.90 mnt in February, 2021.

Although South East Asia spearheaded China's steel exports in January-February, 2022, there has been a marked 0.36 mnt or 26% drop m-o-m to this region. Total exports to Southeast Asia, traditionally China's largest steel importer, comprised a leading 2.47 mnt, followed by Middle East and Africa at 1.60 mnt (29% m-o-m decline) and East Asia with 1.10 mnt (11% drop m-o-m). South East Asia has traditionally been the top importer from China.

However, SteelMint understands that China's steel exports in March-April will be comparatively higher, helped by the gaps created by the Russia-Ukraine war.

On a standalone basis, South Korea led the exports show in these two months with a total volume of 0.71 million tonnes (mnt), followed by Vietnam at 0.69 mnt, Thailand (with 0.46 mnt), the Philippines (0.44 mnt) and Indonesia (0.42 mnt).

For country-wise break-up, click here

Why did exports drop in Jan-Feb?

Steel exports fell mainly due to two reasons:

• Chinese mills, hamstrung by factors like production cuts, decarbonization goals, week-long festive holidays, Winter Games etc were away from the exports market in January.
  
  
• Domestic prices, which had been bottoming out due to interest rate cuts and economic stimulus measures, started recovering from February, post-Lunar holidays. In fact, HRC prices started regaining after the Lunar holidays, urging mills to focus on the domestic market.
  
  

Factors supporting China's exports to Korea, SE Asia

• Domestic supply constraints raise Korea's imports: Import volumes into South Korea from China rose on account of domestic supply constraints, rise in production costs and increased cost pressures. POSCO's blast furnace no.4 at its Gwangyang Works is under maintenance, reducing domestic crude steel supply.
  
  

Another key reason is the drop in South Korea's scrap imports in January due to higher prices and freight. As per worldsteel, South Korea's crude steel production dipped 2.6% m-o-m to 5.2 mnt in February 2022 against 6 mnt in January.

• Lack of safeguards keeps Vietnam on radar: China did not have the option to export to Europe when the Russia-Ukraine war began in the last week of February, being hamstrung by safeguard measures from Europe. Hence, it naturally zeroed in on regions that do not have quantitative restrictions, one of them being Vietnam, which is traditionally the leading importer from Southeast Asia. But here too, exports fell 32% m-o-m with Chinese mills busy with domestic sales.
  
  
• War increases exports to Turkey: Exports to Turkey, on the other hand, rose 8% m-o-m in February to 0.12 mnt against 0.11 mnt in January since it was busy scouting for material from all over after supplies from Russia and Ukraine were disrupted with the onset of the war.
  
  

Outlook

The Russia-Ukraine war will keep Chinese steel exports on the higher side in March-April. Russia and Ukraine together exported around 45 mnt of steel. China will be eager to get a sizeable chunk of this pie in the absence of CIS from the market. With the onset of the war, China became active in exports across categories, including slabs, HRCs, billets, wire rods etc and exports in these categories are expected to be higher in March-April.

The war is already helping China garner billets exports, especially to Thailand. It may be mentioned that Russia's overall billets exports comprised a chunky 15 mnt in 2021 while Ukraine's volumes touched 6.77 mnt. A substantial portion from both countries is being serviced by China at present.

However, there is a rumor that the Chinese govt. is considering an export tax, which may impact the exports, although no further details were available till the time of publishing this report.

The market buzz at the beginning of 2022 was China would re-enter exports big-time which may have worried Indian mills. The Russia-Ukraine war helped to allay those fears for Indian mills, with EU showing an appetite.

Chinese mills will aggressively scour overseas markets to offset their bottomline against the backdrop of dull domestic demand - thanks to Covid, and production cuts.