China's steel exports to Middle East and Africa rise 50% y-o-y in Jan-Jun'23

• China's total steel exports up over 30% in Jan-Jun'23
  
  
• Exports to MENA, South America, SE Asia rise sharply
  
  
• Shipments expected to reach 72-75 mnt in CY'23 despite falling in H2
  
  

Morning Brief: China's steel exports in the first six months of 2023 (H1CY'23) rose sharply by 32% y-o-y. As per Chinese customs and SteelMint data, exports of steel products by China in January-June'23 reached 43.88 million tonnes (mnt) compared with 33.28 mnt in the corresponding period of 2022.

China's steel exports in 2022 stood at over 67.44 mnt, slightly higher than 66.91 mnt in 2021. It is expected that exports this year may edge higher than in 2022- even exceeding 69.55 mnt recorded in 2018- on increased shipments in H1CY'23.

Region-wise exports

The Middle East and North African (MENA) region was the leading steel importer from China during the period. Data show that exports to this region increased by 50% y-o-y to 12.77 mnt compared with 8.52 mnt in the year-ago period.

Exports to South East Asia, too, increased by 22% on the year to 12.62 mnt in H1 compared with 10.34 mnt in H1CY'22. Shipments to East Asian countries (Japan and South Korea) rose by 35% y-o-y to 5.9 mnt. Exports to Central and South America also rose sharply by over 60% on the year to 4.74 mnt from 2.95 mnt in H1CY'22.

Similarly, shipments to South Asia edged up by 24% y-o-y to 2.23 mnt from 1.8 mnt in the corresponding period of last year.

In June'23, however, the leading importing region was South East Asia with 2.17 mnt followed by MENA and East Asia with 2.04 mnt and 0.81 mnt, respectively

China's Region-wise Steel Exports in H1 2023 (Jan-Jun)

Top importers

The top importer of steel from China in H1CY'23 was South Korea at 4.51 mnt, an increase of 36% y-o-y. Shipments to Vietnam stood at 3.68 mnt, up 145 y-o-y compared with 2.22 mnt in January-June'22.

The other leading importers of Chinese steel in H1 were Turkiye with 2.59 mnt and Thailand with 2.49 mnt.

Why China's exports surged in H1?

Weak domestic demand: Despite the lifting of COVID restrictions this year, China's steel demand has failed to rebound to the extent expected. In fact, the rise in domestic consumption in 2023 has been on account of the services sector rather than heavy industry. Steel demand remains lacklustre due to the continued underperformance of the debt-ridden real estate and construction sector, which accounts for around 35% of Chinese steel demand. Even demand from the manufacturing sector- despite stable domestic fundamentals- is not that strong due to weak export demand globally. Moreover, China's steel production grew 1.3% y-o-y in H1CY'23 to over 534 mnt. Therefore, soft domestic demand triggered growth in exports.

Currency depreciation: The Chinese Yuan (RMB) has depreciated about 5% against the USD since China's post-COVID reopening in January this year. This is due to disappointing economic data, widening yield differentials with the US, corporate dividend payments and continued capital outflows through foreign selling of stocks and bonds. This has naturally made Chinese exports to the world market more lucrative for mills and traders.

High energy prices impact steel production: Still-high energy prices in many parts of the world have had a direct impact on steel production, especially in South East Asia and countries in the MENA region such as Turkiye. As production was impacted in these countries due to soaring costs, steel end-users turned to lower-priced Chinese cargoes as a viable alternative. That apart, post China's much-anticipated reopening , higher demand for construction steel from Chinese companies based abroad- for example in Indonesia- also contributed to a surge in steel exports by China.

Outlook

The Chinese government has announced the 'flat control' policy in view of keeping steel production lower or at par with 1.013 bnt produced in 2022. As production inched up 1.3% y-o-y in H1, it is expected that steel output in H2 is likely to fall by 8-10% y-o-y. Lower production is expected to impact steel exports.

China's average monthly steel exports in H1 stood at over 7 mnt. Although this is expected to edge lower in H2, steel exports will still exceed the 2022 mark of 67.44 mnt. SteelMint estimates China's exports to reach around 72-75 mnt in CY'23.