China's steel exports hit over-7-yr high in Mar'24 as home demand fails to pick up

• Higher crude steel output drags down Mar prices
  
  
• Weak yuan, competitive pricing benefit exporters
  
  
• Construction sector set to remain dull in near term
  
  

Morning Brief: Chinese steel exports have continued last year's northward march well into 2024. Data maintained with BigMint reveals that March 2024 volumes hit an over-seven-year high of 9.89 million tonnes (mnt). The closest this figure comes to was recorded at 10.30 mnt in July 2016.

On a m-o-m basis, March volumes were up a significant 39% from 7.17 mnt in February. Y-o-y, exports were up 25% compared to 7.89 mnt seen in March 2023.

Over January-March, 2024, cumulative volumes amounted to nearly 26 mnt, up 28% against 20 mnt seen in the same period last year.

Why did Chinese steel exports surge in Mar'24?

Poor home demand: China's steel exports have been steadily climbing up y-o-y from 2021 with volumes hitting over 90 mnt last year, down only from the 109 mnt recorded in 2016.

China has been battling poor home demand ever since Covid struck in 2020. The pandemic was followed by a collapse of the construction sector when real estate giant Evergrande fell into a debt trap and started going belly up from around 2021. Ever since this collapse, steel demand has been feeling the aftershocks especially since real estate represents one-fourth of the Chinese economy, as per some sources.

Thus, Chinese mills and traders have no choice but to explore overseas markets and sell at highly competitive prices.

High crude steel production: Despite sluggish domestic demand, China's crude steel production was higher by 1.6% over January-February, 2024. This created a supply glut and mills were impelled to keep exploring export options to offload inventory.

The 13% fall in prices of a key raw material like iron ore also possibly encouraged the higher production. Prices of the Fe62% fines, CFR China, fell to $110/t in March against February's $126/t.

Fall in domestic prices: The lack of domestic demand, coupled with the higher crude steel production exerted pressure on Chinese steel prices. For instance, benchmarked hot rolled coil prices in Tangshan dropped 4% m-o-m in March to RMB 3,294/t ($455/t). If compared to January 2024 levels, then HRC prices have dipped over 5%. Similarly, rebar prices were down 5% in March to RMB 3,670/t ($507/t) compared to the January-February levels. Squeezed margins and lower realisations further encouraged exports.

Lunar holidays further dent demand: The Lunar New Year holidays, which fell over 10-17 February this year, further dented Chinese home demand which led to higher inventory pile-up at key mills. The China Iron and Steel Association (CISA) reported total steel inventories of key enterprises in mid-March 2024 at 19.53 mnt, which were up 2.92% m-o-m compared to 18.98 mnt in mid-February and 3% y-o-y compared to 19 mnt in mid-March 2023.

Pricing strategy, receding yuan help exporters: China's cut-throat pricing strategy continued into 2024, which has out-priced other exporting countries, especially India. Chinese export offers averaged $543/t FOB in March 2024, a 3.5% m-o-m drop from $563/t in February. In fact, offers fell back again after a slight uptick to around $575/t in December 2023-January 2024. In contrast, Indian offers hovered at a higher $583/t in March and even higher over January-February, 2024.

The Chinese yuan fell around 1% in March to 7.2 against the dollar compared to 7.13 in January. Thus, exports became even more lucrative with the receding currency.

Outlook

Chinese domestic prices have shown an uptrend since early April but this can be attributed to a raw material cost push. There was a slight inventory depletion, perhaps, nudged by the price uptick.

China sees improved weather around this time of the year, which traditionally favours construction activity. However, in a markedly changed scenario, lack of funding and delays in major projects are dampening overall demand. This will possibly lead to a slowdown in steel consumption even during the peak construction season. Considering these factors, exports will continue to remain inflated in the near future, which could also exert pressure on offers or keep these range-bound.