China's steel exports rise 28% in Q1; upswing expected to continue in Q2
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- Production glut, aggressive pricing keep exports high
- Vietnam, ME sustain their procurement momentum
- Domestic demand improving but mills booked till July
Morning Brief: China's steel exports retained their upswing in the first three months (January-March, Q1) of 2024. China's Customs data, collated by BigMint, reveals, cumulative volumes over Q1 rose a considerable 28% to nearly 26 million tonnes (mnt) against 20 mnt seen in the same three months in 2023.
Volumes in March 2024 were also up 38% m-o-m to nearly 10 mnt against 7 mnt in February.
SE Asia continued to be largest steel importer from China. Its volumes rose 28% to nearly 7.41 mnt (6 mnt) in this period under review. Vietnam, as usual, led the charge with volumes rising a significant 64% to 3 mnt (1.90 mnt). However, Indonesia, traditionally another large importer, showed a slight 1% dip y-o-y.
Middle East & Africa too showed a 36% growth y-o-y to over 7 mnt (5.26 mnt) while East Asia recorded a 1% dip in Q1 to 2.85 mnt (2.90 mnt). Volumes to Japan fell 13% to 0.22 mnt (0.25 mnt) and to Korea by 16% to 1.81 mnt (2 mnt). In Japan, automotive demand is down and in Korea both automotive and white goods consumption is dull. Thus, mills here are trying to find a balance by exporting more to Europe, the US, Central America and elsewhere.
Moreover, the Japanese yen is now at over 150 to the dollar compared to around 130 a year back, and this is making imports costlier for end-buyers here.
South Asia volumes rose 73% to 1.45 mnt (0.84 mnt).
Factors that influenced China's steel exports in Q1
Supply glut encourages exports: China's crude steel production rose 1.60% over January-February, 2024 to almost 168 mnt, surprising markets, especially since domestic demand was still a challenge. The higher output was propelled by the persistently high exports. But, improved performance in manufacturing, infrastructure and automotive demanded higher production too. Inventory pile-up ahead of the Lunar New Year, also encouraged exports. However, output has dipped 1.9% y-o-y to 257 mnt in January-March, 2024.
Aggressive pricing strategy continues: China continued with its cut-throat pricing strategy in the face of subdued home demand. Although the government has formulated policies to stimulate demand, these are yet to bear fruit. Indian mills were completely out-priced from the Southeast Asian market in Q1 and neither were they interested in selling. China's average HRC offers to Vietnam in Q1 was at $590/t CNF HCMC while the Indians quoted $610/t CNF HCMC.
Chinese HRC offers to the Middle East also averaged $600/t CNF UAE in Q1 against the Indians' $629/t CNF UAE.
Demand from Vietnam remains healthy: Spearheading Southeast Asia was Vietnam where end-buyers bought even though domestic demand was not good. One reason was that Vietnam's scenario was similar to that of India's. Despite the healthy crude steel production, as with India's, Vietnam too kept importing. Because, like Indian mills, Vietnamese ones also maintained their domestic prices. "It made economic sense to import if the landed price was cheaper compared to domestic," observed a source.
Domestic Q1 prices from Vietnamese integrated mills like Hoa Phat averaged $616/t CIF HCMC while Formosa's were at $626/t CNF HCMC. Both were higher compared to the Chinese offers.
Secondly, unlike Indian mills, Vietnamese steel-makers do not have any BIS-like restrictions - allowing for duty - free imports from China.
Thirdly, Vietnam was able to buy cheap from China, process the steel and export value-added products to various geographies, including the Middle East, Southeast Asia, Africa etc which do not have too many trade restrictions. Lastly, Vietnamese integrated mills were exporting considerable amounts to Europe, Canada, Central and South America also because they do not face quota issues, unlike India, Japan and Korea.
Oil & gas sector keeps demand healthy from ME: Demand here has picked up particularly in high-value items on the back of several major pipeline projects announced by leading oil & gas players who are actively importing various API grades. However, a source informed that there is not much momentum in commercial grades except for the volumes required by some mills in MENA, which export galvanized pipes to the US and Canada without the challenges of anti-dumping duties, a barrier often faced by many heavyweight Asian steel producing countries. "These players in MENA import a fair amount of HRCs, process these into galvanized square pipes or hollow sections and export," the source elaborated.
India, Pak keep South Asian imports buoyant: India's imports rose 56% in Q1 y-o-y to 0.60 mnt (0.38 mnt). Over September-December, 2023, Indian market prices were high, encouraging end-buyers to import. From December onwards when BIS licences started expiring, volumes decreased even as domestic prices fell.
Pakistan's import demand is picking up on the back of the bailout packages it has received from the International Monetary Fund. This has facilitated buyers' payments and opening of fresh LCs. So, on a small base of 0.24 mnt volumes grew 121% to 0.54 mnt.
Outlook
The upward trend in China's steel exports will continue into the second quarter. Sources indicate that Chinese mills' shipments are booked till July-end.
Domestic demand is good. Stimulus measures will possibly invigorate the real estate sector while other policies have been designed to boost white goods consumption. The impact of these incentives is likely to be felt in the coming months.
However, many feel the humongous demand seen in 2020-21 is not likely to be replicated any more. Domestic demand would possibly rest at 600-800 mnt and around 100 mnt would be exported, which would take care of the capacity, which too is down from around 1,150 mnt in 2019 to 1,173 mnt in 2023.
Rumours related to a Chinese crackdown on HRC deals without VAT can have some ramifications on trades or prices. The buzz is, there can be a probable stoppage in non-VAT exports.
