China's steel exports jump 25%, y-o-y, in 2021; will the momentum sustain in 2022?

Steel exports by the world's top steel producer, China, increased by 24.64% year-on-year to 66. 9 million tonnes (mn t) in CY'21 compared to 53.67 mn t in CY'20, data from China's General Administration of Customs shows.

Steel exports jumped even as crude steel production in CY'21 is expected to drop by around 35 mn t from CY'20 levels to 1.03 billion tonnes (bn t). SteelMint data puts the country's crude steel production at 945 mn t in Jan-Nov'21 - down 2.33% from 967.5 mn t in the year-ago period.

China's total finished steel exports over Jan-July increased 31% on the year to 43.051 mn t, accelerating from a 30% year-on-year increase seen during H1CY'21 when exports stood at 37.38 mn t. High global steel prices amid recovery in demand after the second wave of the pandemic kept export sentiments high.

However, the government removed export value added tax (VAT) rebates for 146 steel products on 1 May and again in Aug on cold-rolled coil (CRC), hot-dipped galvanised (HDG) steel coil and sheets, electro-galvanised steel coils and sheet, silicon steel and rail steel.

The Customs Tariff Commission of the State Council had cancelled the VAT on HRC and rebar earlier in May. The move was aimed at curbing crude steel output to meet decarbonisation goals, enhancing domestic supplies, discouraging value-added exports and controlling iron ore prices.

As a result, exports declined in H2CY'21 as crude steel production fell on pollution control measures as well as power crunch. Domestic supply tightness kept prices elevated and so exports became less attractive. Further, global economic recovery in general led to a fall in China's exports in H2CY'21.

Besides, the spread of the pandemic in Asia restricted exports in H2, with major buyers from China such as Vietnam or the Philippines reeling under lockdowns.

However, data shows that exports in Dec rose by over 15% month-on-month to 5.03 mn t. China's steel production was certain to rebound in Q1CY'22, after steel mills finished output cut requirements for CY'21.

Some mills may have postponed exports in order fulfill steel output targets. Therefore, export volumes are expected to surge in Q1.

Steel imports drop sharply

On the other hand, China's steel imports dropped by over 30% to around 14 mn t in CY'21 compared to over 20 mn t in CY'20.

Of course, the fall has been sharp on a high base effect. The stimulus-induced recovery of the Chinese economy in CY'20 happened at a time when steel demand in the rest of the world crashed. So, mills around the globe had to survive on shipments to China where growing downstream demand outpaced supply.

Although high prices in CY'21 discouraged imports by China, the country's long-term emissions targets and production curbs are expected to encourage imports of semi-finished steel, thereby benefitting suppliers like India, Iran, Ukraine and even Russia.

Iron ore imports down 4%

China customs data reveals that the world's top iron ore consumer brought 1.12 bn t of the commodity last year, compared with 1.17 bn t imported in CY'20 - down nearly 4% y-o-y.

China consumed iron ore at a rapid rate in H1CY'21, backed by robust steel production as mills enjoyed decent profits underpinned by a recovery in demand.

But imports started to fall on an annual basis as authorities urged steel mills to cut production to keep crude steel output flat. During Jun-Dec, China's iron ore imports slid nearly 10% from the same period a year earlier.

Slowing construction activity amid deleveraging in the real estate sector also impacted downstream demand.

While the major global suppliers are expected to increase shipments after weather-related disruptions in Brazil and Australia in Q1, demand will largely be a function of the Chinese government's carbon goals and policies related to steel production.

Coal imports rise

Unlike iron ore, China's coal imports increased 6.3% to 323 mn t in CY'21 from around 303 mn t in CY'20. China, the world's largest coal buyer, imported 30.95 mn t of coal in Dec, down 11.7% from Nov.

Coal demand improved in CY'21 on higher manufacturing and industrial activity. Floods and mine inspections on environmental concerns hit coal domestic production, while geopolitical tensions with Australia and pandemic-related disruptions on the Mongolian border impacted supplies leading to a power crisis.

However, China increased sourcing in a major way from the USA and Russia among others to offset the shortfall in supplies.

Unlike the previous two years, China did not impose an unofficial imports cap in CY'21 amid efforts to ensure stable coal supplies to ease nationwide electricity shortages and to control coal prices.

Domestic supplies have increased and subdued industrial activity during the Lunar New Year holidays could keep imports in check, especially with winter heating requirements slowly ceasing.