China's steel exports up 20% over Jan-Jul'24. Protectionism a challenge, going forward

• Slack home demand, eroded yuan boost exports
  
  
• Key destinations see m-o-m decline in volumes
  
  
• Will exports cross 100 mnt in this calendar?
  
  

Morning Brief: China's steel exports recorded a 20% growth at 61.20 million tonnes (mnt) in January-July, 2024, as per data collated by BigMint. Volumes were at 51 mnt in the same period in 2023. On a m-o-m basis, July volumes fell by 11% to 8 mnt against nearly 9 mnt in June, 2024.

However, data also reveals that the pace of China's steel exports is slowing down. Volumes rose a decent 30% over January-February and 28% in Q1CY'24. January-April figures recorded a 25% increase but the growth slowed to 23% in the first five months and 22% in H1CY'24.

Interestingly, six of the key exporting geographies recorded a m-o-m drop in July.

Country-wise exports

SE Asia remained the largest steel importer from China with volumes rising 29% y-o-y over January-July to nearly 19 mnt (around 15 mnt in the same period last year). M-o-m volumes dropped 13%. Vietnam, China's largest exporting county, saw volumes rising 61% y-o-y to 7 mnt (4 mnt) but dropping 13% m-o-m. Except for Thailand, the balance six SE Asian destinations showed m-o-m declines.

Middle East & Africa showed a 19% growth y-o-y to 17.50 mnt (15 mnt). But Turkiye continued to experience a decline y-o-y.

East Asia recorded a 7% increase to almost 8 mnt (7 mnt). Even if y-o-y volumes showed an increase, m-o-m, the top three-Korea, Taiwan, Japan--showed a decline.

South Asia witnessed a 40% increase in January-July to 4 mnt (3 mnt). Disturbingly, volumes to India rose 33% to 1.71 mnt (1.29 mnt).

Europe registered a y-o-y dip of 6% but grew 37% m-o-m.

Major countries (Italy, Belgium and Spain) showed m-o-m increases but mostly all showed y-o-y dips. The US was written in red as volumes were down 6% y-o-y and 27% m-o-m.

China's steel exports up 20% over Jan-Jul'24.

Factors influencing Chinese steel exports over Jan-Jul'24

Slack home demand compels mills to export: The construction sector continued to struggle through the year despite the stimulus measures. Once, the largest consumer with 42% share, construction is now languishing with barely 24% in the total steel downstream pie. The property sector's collapse was triggered by the 2021 default of the Evergrande Group, the largest real estate player globally. Since then, the property market is yet to find bottom amid plunging consumer confidence and inventory overhang. Infrastructure and manufacturing are also slowing, offering mills little confidence in domestic demand. In July, the PMI slowed slightly m-o-m. The government-controlled China Metallurgical Industry Planning and Research Institute forecasts a 1.7% drop in China's steel demand this year, following a 3.3% decline in 2023. Thus, exports are the only option open.

Cut-throat pricing lures buyers: Prices have become a major tool to capture overseas markets for Chinese mills and traders, which is being used aggressively in the post-pandemic period so much so that India, a key steel exporting country, has been out-priced. Chinese hot rolled coil offers over January-August have eroded 13% to an average $533/t FOB against $613/t seen in the first eight months in 2023 and to their lowest since June 2022 of $474/t in August.

Yuan devaluation helps exporters: The Chinese currency devalued almost 2% in July to 7.26 against the dollar compared to 7.13 in January this year. The devaluation is proving to be a boon since it is making goods cheap to foreign buyers and increasing export volumes, which is not a bad thing against the backdrop of squeezed margins and losses incurred at home.

Slew of dumping measures impact volumes: However, on the downside, several anti-dumping investigations are proving to be a party pooper and slowing Chinese exports. Most economies are sitting up to guard their domestic industries against dumping. These include the European Union, Vietnam, and Malaysia whereas the Biden administration in the US has been pushing to triple the tariffs on Chinese steel imports.

Vietnam's mills are cautious as proven by Formosa's decision to cut HRC offers for October sales while scrap imports are also fluctuating downwards since May. Indonesia too is looking to balance local production with Chinese imports amid protests.

Meanwhile, a key steel producer in the Middle East has asked the UAE government to explore ways to reduce the impact of Chinese steel exports at "knockdown prices".

Outlook

Chinese steel exports will continue for the rest of the year, since the fundamentals of its economy are not going to change soon. However, the momentum may slow down slightly. As per some sources, exports may cross 100 mnt in 2024 against 90 mnt seen last calendar.

Simultaneously, protectionism will be a challenge that China will also have to deal with, going forward.