China's steel exports may touch 70 mn t in CY'21

China's steel exports in the next few months of this year are expected to be high and for the whole year, at about 70 mn t, which would be an increase of 30% over the previous year, as per Lange Steel Economic Research Centre.

Exports of finished items have been relatively strong since the beginning of this year. Data from the General Administration of Customs show that in the first half (H1) of CY'21, the country's steel exports increased 30.2% y-o-y, turning from a decline to an increase. In Q3 (July-September) China's steel exports continued to accelerate despite the withdrawal of the export rebates in May and August.

Exports in July increased almost 36% y-o-y, and in August by 37% y-o-y, which greatly exceeded the average export growth rate in H1. From January to August, exports were at 48.1 million tonnes (mn t), a y-o-y increase of 31.6%.

China's steel exports have always been an important part of its total steel demand. This year's share is strong and estimated to exceed 6% and is driving its total demand growth. Thus, it is estimated that China's total crude steel demand (including direct exports) in CY'21 will be close to 1.1 billion tonnes, a record high, as per the Lange Steel Economic Research Centre.

Why are China's steel exports still high?

Since the beginning of this year, China's steel exports have grown strongly because of the higher prices in the international markets, and the attractiveness of China's steel export prices.

Since Mar'20, US steel prices have soared 215%. The benchmark price of hot-rolled steel once climbed to $1,825 per tonne, or approximately RMB 12,000/t. In addition, the prices of steel products in the European Union, Japan, South Korea, Africa and other countries have risen sharply.

Moreover, as CCTV Finance reports, tight supply is the main reason for high global steel prices, and the United States and Germany have both experienced "steel shortage". This is because the recovery in supply lags behind the growth in demand. It is expected that the price increase in the overseas market will not end soon, at least till 2022. Therefore, steel prices will remain on the higher side at least till one year.

A recent Citibank survey of global steel markets revealed that the high global steel prices may continue till 2022. The World Bank also believes the current increase in steel prices may not be just a bubble, which indicates that the supply situation is very tight while demand has returned to pre-pandemic levels. The World Bank also stated that with the reopening of economies, demand will further increase and prices will rise again.

The high overseas prices continue lure Chinese steel producers.

Fed impact

The US Federal Reserve's (Fed's) withdrawal from extreme monetary easing may have an impact on international steel markets. The Fed's "exit roadmap" is as follows:

1. Reduce asset purchases and shift from extreme monetary easing to moderate from November this year.

2. Completely stop asset purchases and shift from loose monetary policy to conventional monetary policy from the middle of next year. Today the Fed buys assets worth $120 billion every month. After stopping asset purchases, the Fed may raise its benchmark interest rate in H2 of 2022. Some analysts believe there will be one interest rate hike in 2022, three in 2023, and another three in 2024. Today the Fed's interest rate is close to zero, and the yield on the 10-year US Treasury bond is about 1.31%.

Nevertheless, in the long run, the Fed's withdrawal from "extreme monetary easing" appears to be "negative" on the surface, and will have a major impact on steel markets, especially after the price rises. But it is actually "bullish" if the Fed does not make any major strategic misjudgements. This is because the Fed's withdrawal from monetary easing means its economy has begun to improve, demand has turned strong, employment has gradually increased, prices have risen quickly, and investments have gradually resumed due to price increases.

If no measures are taken, China's steel exports will be even stronger by then.

Outlook

But China's large steel export volumes are not conducive to the healthy and sustainable development of its economy, in achieving the strategic goal of "carbon neutrality". Because steel is a high-energy-consuming product, huge exports will result in huge "carbon emissions". After all, steel production of about 100 mn t will entail a huge amount of "carbon emissions". Therefore, to achieve "carbon reduction-based development", it is necessary to reduce steel exports.

Thus, China needs to introduce stronger measures like export tariffs to lower direct steel exports. At the same time, it should continue to support and encourage exports of high value-added steel, such as home appliances, communication equipment, automobiles, machine tools, ships, and construction machinery.