China's steel exports momentum slows further in Jan-Aug'24. Will new policies boost home demand?

• Predatory pricing continues to hit importing countries
  
  
• Are dumping probes, stronger yuan affecting exports?
  
  
• Stimulus measures aiming to support property sector
  
  

Morning Brief: China's steel exports recorded a slower m-o-m growth of 19% at around 71 million tonnes (mnt) in January-August, 2024 against nearly 60 mnt seen in the corresponding period last year, as per data collated by BigMint.

M-o-m, August volumes rose 21% to 9.50 mnt against nearly 8 mnt in July 2024.

However, data also reveals, the pace of China's steel exports is slowing down. January-July growth was at 20%.

Volumes rose a decent 30% over January-February and 28% in Q1CY'24. January-April figures recorded a 25% increase but the growth slowed to 23% in the first five months and 22% in H1CY'24.

Country-wise exports

SE Asia remained the largest steel importer from China with volumes rising 26% y-o-y over January-August to nearly 22 mnt (around 17 mnt in CPLY). Most countries recorded decent growth y-o-y. Volumes rose amid restocking activity as China went on a seven-day Golden Week national holidays from 1 October.

Middle East & Africa showed a 20% growth y-o-y to 20 mnt (17 mnt). This region almost caught up with Southeast Asia during the period under review. All destinations here showed a healthy m-o-m and y-o-y growth. Turkiye slid 9% y-o-y because earlier in the year its steel demand was impacted by elections and also subdued demand from Europe.

East Asia recorded an 8% increase to almost 9 mnt (8.4 mnt). Among the top three, South Korea showed a marginal 2% y-o-y dip.

South Asia witnessed a 42% increase in January-August to 5 mnt (3 mnt). Disturbingly, volumes to India rose 37% (2.07 mnt) y-o-y and 24% (0.36 mnt) m-o-m.

Europe registered a marginal y-o-y (2.93 mnt) and m-o-m (0.41 mnt) dip of 1%. Anti-dumping investigations from the EU on China are raising a red flag.

Download China steel export report

Factors influencing Chinese steel exports over Jan-Aug'24

Slack home demand compels mills to export: The construction sector continued to struggle through the year despite the previous stimulus measures. Once, the largest consumer with 42% share, construction is now languishing with barely 24% in the total steel downstream pie. The property market is yet to find its feet. Infrastructure and manufacturing are also slowing, offering mills little confidence in domestic demand. The government-controlled China Metallurgical Industry Planning and Research Institute forecasts a 1.7% drop in China's steel demand this year, following a 3.3% decline in 2023. Thus, exports are the only option open and mills have been dumping aggressively for the last two years despite the government having pledged earlier to focus on cutting-edge, value-added products.

Pricing an aggressive tool to lure buyers: China has been dumping steel at predatory pricing much to the delight of end-buyers. Chinese average HRC offers to Vietnam have fallen a steep 22% since January 2024 ($609/t CNF HCMC) to as low as $476/t in September. Similarly, offers to the Middle East eroded by 20% to $496/t CNF Abu Dhabi in September from $619/t in January this year. Vietnam's domestic mills were unable to match these offers while Indian sellers left the market.

Yuan devaluation benefits exporters: The yuan had been depreciating till July this year but pulled the brakes from August. It devalued almost 2% in July to 7.26 against the dollar compared to 7.13 in January this year. The devaluation also benefited exporters. At present, it has strengthened to around 7.02 to the greenback, which may be a tad discouraging for exporters who have been nursing squeezed margins for months and exports proved profitable.

Slew of dumping measures impacts volumes: A slew of anti-dumping investigations against Chinese hot rolled coil exports has been a party pooper and may also be aiding the slowing exports. The economies of most countries where Chinese steel is finding its way are hurting. The domestic mills are under tremendous pressure to match the predatory prices. These include the European Union, Vietnam, India and Malaysia while the Biden administration in the US has been pushing to triple the tariffs on Chinese steel imports.

Outlook

China recently announced a new set of measures to boost the economy. These included half a percentage cuts to the mortgage rate for existing housing and the reserve requirement ratio (RRR). The latter refers to the amount of cash that commercial banks must hold as reserves. It also planned to roll out new tools to support the stock market.

Further policies from the People's Bank of China aim revitalise the property construction sector to ease financial pressures on real estate companies.

These measures are expected to boost domestic steel consumption, especially at a time China is seen entering its peak demand season-October onwards.

Improved home demand and dumping investigations may further lower Chinese steel exports in the coming months. However, some sources feel, exports may cross 100 mnt this calendar against 90 mnt seen in 2023.