China's steel exports rise 28% in Jan-Jul. What factors will sustain uptrend?
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- Elevated crude steel output, low domestic demand keep exports high
- Currency devaluation makes overseas sales attractive
- Volumes may gain traction amid competitive offers
Morning Brief: China's steel exports have remained well over 30% y-o-y for the better part of 2023. In fact, January-July, 2023 showed the lowest increase of 28% to 51 million tonnes (mnt) compared to almost 40 mnt seen in the same seven months in CY22.
Data collated by SteelMint, reveals that volumes rose steadily from January-February (39%). January-March saw a 44% increase while the highest, 55% rise, was recorded over January-April post-which there has been a steady reduction though. January-May saw a slimmer 34% increase and till June, 32%.
Factors influencing the uptrend
Elevated crude steel production: China's crude steel production remained elevated throughout the calendar. Worldsteel data reveals, even though volumes are down from the 6.1% increase seen over January-March, 2023, these were still higher by 4.1% in January-April, 1.6% over January-May and 1.3% in January-June and rebounded slightly by 2.5% in January-July. While there has been no official announcement from the government on production cutbacks, mills are being told piecemeal to reduce output in some provinces. These diktats are possibly emanating from local administrative authorities.
Domestic demand slumps: Demand for steel in China slumped after the country's property market collapsed a few years back. "Domestic demand in China remains muted, resulting in higher steel exports," corroborated a source. On the other hand, mills were saddled with inventory with production being in surplus. Hence, they were encouraged to export.
Price advantage: China has always been a price setter. It has habitually tried to sweep global demand towards its shores with offers that are hard to refuse. Thus, data reveals China has been consistently keeping global HRC offers lower compared to competitors like India, Japan or even Russia.
In June, its HRC offers had hit a rock-bottom of $550/tonne FOB whereas Indians quoted $568/t, and the Japanese, $580/t. In July, data reveals Chinese offers were at $560/t FOB. The Indian and Japanese offers hovered around $570/t and $575/t respectively.
Currency depreciation makes exports attractive: The Chinese currency has depreciated almost 5% against the dollar since the beginning of the current calendar, as per a report by Reuters in early June. This has increased the competitiveness of exports. Therefore, even if mills have been exporting at eroded offers, the attractiveness remains.
Middle East and Africa: China's exports over January-July continue to be dominated by the Middle East and Africa region (MENA). Volumes rose a significant 44% to 15 mnt against 10 mnt seen in the same seven months in CY22. The focus is slowly shifting away from oil-related infrastructure, especially in the Gulf in a bid to speed up the economies here. Therefore, a slew of infrastructure projects, running into multi-billion dollars, is under way in the UAE, Qatar, Oman and Kuwait. These are necessitating copious volumes of steel imports. For instance, exports to the UAE and Saudi Arabia are up 94% and 51% respectively y-o-y in the period under review. Iraq's is up a massive 137% albeit on a low base.
Plus, as per one source, these markets have vessel services with China, which make freights cheaper.
Southeast Asia: Volumes are neck-and-neck with MENA's but y-o-y are up a more sedate 17% to 15 mnt (12 mnt). Most of the countries here show degrowth in Chinese imports amid a slowdown in demand. But Vietnam, China's largest buyer, showed a nominal 17% y-o-y growth because of the affinity for domestic material amid a demand uptick. Vietnam bought in moderate quantities as China dangled lucrative offers through the month although it raised the same end-July.
Central and South America: Volumes here showed a 48% y-o-y spurt to nearly 6 mnt (4 mnt). "There is a demand revival in Latin American countries," informed a source, adding that local production in some countries, like Mexico, is down.
Outlook
Although the Chinese government, a few years back, had taken a decision to export only value-added, high margin special steels, the reality has turned out to be somewhat different, considering the exigencies of a floundering domestic property market. China's steel exports are expected to rise an estimated 10% to over 72 mnt by end of 2023, as per SteelMint's forecasts. The thrust in the near future will continue to be on commercial grades rather than special steels as demand is expected to remain muted in most countries.
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