China's steel exports rise robust 55% in Jan-Apr. How long will trend sustain?

• Higher crude steel output weighs on mills
  
  
• Middle East regains leading importer status
  
  
• Exports may taper off post-June
  
  

Morning Brief: China's steel exports showed a robust 55% y-o-y increase over January-April, 2023, reveals data maintained with SteelMint. Cumulative volumes in these first four months rose to 28 million tonnes (mnt) compared to 18 mnt in the same period in 2022.

April 2023 volumes, however, were stable m-o-m at 7.55 mnt, compared to 7.52 mnt in March.

What factors are keeping China's exports supported?

A conjunction of complex international factors and insufficient domestic demand are colluding to keep exports up and prices low.

Crude steel production glut: China's crude steel output was up 4.1% y-o-y over January-April, 2023, to 354.40 mnt. China has been stressing on quality rather than quantity and thus, after much mulling, recently released its first official production cut directive recently. Even though the April output, at 92.60 mnt, was actually lower by 1.5% y-o-y and by 2.2% m-o-m, Chinese mills had enough inventory overload that needed a release in the form of exports, especially since domestic demand has not gone up as per expectations amid squeezed margins.

Domestic demand still subdued: Demand in China's domestic market is still subdued. Real estate, the largest consumer of steel, did show signs of recovery, but investment and construction are still declining, sources indicate, forcing mills to look beyond domestic shores.

Importers lured by cheaper offers: Compelled by circumstances, Chinese exporters tried to capture the overseas market with lower offers. However, it was mainly Vietnam that bought from China, primarily because the material was cheap and the voyage time is shorter compared to other exporting countries. Drop in bids and cost-effective offers helped rake in the volumes. Offers to the UAE see-sawed from $620-630/t CFR in early January to $710-720/t CFR around February to fall back to $660/t CFR in late April. Offers for Vietnam dropped from $615-620/t CFR in early January to $600/t CFR levels in late April amid a fall in Chinese steel futures.

Region-wise exports

China has been predominantly focusing on geographies without trade barriers - like Southeast Asia, Middle East, South Asia, Central America etc since it faces anti-dumping issues in Europe and the US.

Middle East & Africa: Steel exports to this region regained prominence in the period under review, with volumes surpassing Southeast Asia - traditionally the leading importer. Exports over January-April, 2023 rose a whopping 82% to 7.82 mnt (compared to 4.29 mnt in the same four months in 2022).

This region has been starved of material because of the lack of indigenous mills, especially for flat products. Turkiye was a good sourcing destination but was out of reach mainly because of supply disruptions that ensued post-quake, followed by the run-up to the Presidential elections. Imports from Russia were viable, but the sanctions have impeded imports from here. The Indians were comparatively pricier while Middle East was exploring cheaper options. Therefore, China was the main sourcing destination. Offers were consistently a little higher too compared to Vietnam's.

Southeast Asia: Volumes stood at 7.80 mnt (5.51 mnt) in this period. With most exporting countries, except China, focused on the high-priced European market, especially in Q1, supplies to Southeast Asia came under pressure. China, sensing a huge opportunity here, sold cheap and played in volumes.

Click here for China region wise exports

East Asia (JKT): Japan-Korea-Taiwan (JKT) saw steel imports from China rise a substantial 48% to 3.59 mnt (2.43 mnt). Korean end-users preferred Chinese materials because these were more competitive against other global offers. Japan's own offers in April averaged $685/t FOB while the Indians were a pricier $695/t FOB. On the other hand, Chinese tags were much lower at $656/t FOB.

South Asia: Exports to South Asia rose a moderate 14% to 1.17 mnt (1 mnt) amid tepid demand across this region. Demand from here is falling behind other geographies like Central America.

Central & South America: This geography, where demand is nascent, is emerging as a prominent buyer. It holds promise especially since domestic supply is weak and the region needs to invest substantially in infrastructure by 2030.

Outlook

SteelMint last heard that Chinese mills were sold out in terms of exports till June. However, thereafter, volumes may dip because of two factors. One is the output cut pressure on mills. Second is the shrinking overseas demand as countries still fight inflation and a shrunk purchasing power.