China's steel exports up 25% in Jan-Apr; key importing countries show m-o-m decline in Apr

• Steel exports to SEA fall 4% m-o-m
  
  
• Previous bookings inflate volumes
  
  
• Chinese mills booked till July-end
  
  

Morning Brief: China's steel exports retained their upswing in the first four months (January-April) of 2024. China's Customs data, collated by BigMint, reveals, cumulative volumes rose a considerable 25% in this period to around 35 million tonnes (mnt) against 28 mnt seen in the same four months in 2023.

However, on a m-o-m basis, total exports in April 2024 slipped 7% to 9.22 mnt against nearly 9 mnt in March. Some of the leading importing geographies recorded m-o-m declines.

Chinas-Region-wiseSteel-Exports-in-4M-2024-Jan-Apr

Country-wise exports

SE Asia continued to be largest steel importer from China with volumes rising 40% y-o-y over January-April to nearly 11 mnt (8 mnt in the same period last year) but fell 4% m-o-m. Vietnam, China's largest exporting county, saw volumes surging 79% to 4.36 mnt (2.44 mnt). Rest of the Southeast Asian geographies also recorded an increase y-o-y for the period under review but a decline m-o-m, including Vietnam (5%).

Middle East & Africa too showed a healthy 34% growth y-o-y to 10.44 mnt (7.80 mnt). But Turkiye, located within this region, experienced 6% drop over the first four months and 38% m-o-m.

East Asia recorded a 27% increase to 4.57 mnt (3.59 mnt). Volumes to Japan rose 17% to 0.37 mnt (0.32 mnt) and to Korea by 7% to 3.04 mnt (2.83 mnt). Even though all the countries here showed a y-o-y increase, South Korea, Taiwan and Japan showed a m-o-m decline by 20%, 53% and 30% respectively.

South Asia witnessed a 77% increase in January-April to 2.09 mnt (1.18 mnt). Here too, even if the y-o-y trend was positive, on a m-o-m basis, Pakistan, Bangladesh and Sri Lanka recorded declines.

Factors that influenced China's steel exports in Jan-Apr'24

Previous bookings keep volumes inflated: Volumes rose overall in the first four months possibly because of earlier bookings that inflated the figures. March 2024 volumes were up 38% m-o-m and the previous two months too had seen aggressive exports activity. However, China's crude steel production showed a 4% decline over January-April, 2024 which led to a m-o-m decline in exports in April. The decline in crude steel stems from the huge overcapacity amid lack of adequate demand and squeezed margins.

Buyers enticed by steadily falling offers: Faced with inadequate home demand, Chinese mills and exporters have no choice but to dump steel at cut-throat prices across the globe, which buyers find attractive. Average Chinese benchmark hot rolled coil prices fell over 16% y-o-y in January-April, 2024. Vietnamese buyers continued to take advantage of Chinese-origin offers which fell 9% in this period and to the Middle East by 10%.

Yuan depreciation a boon for exporters: Even though the value of the offers eroded, the yuan devalued steadily from 7.13 to the dollar in January to 7.24 in April, giving exporters an opportunity to earn healthy foreign exchange.

Vietnam buyers prefer cheaper Chinese imports: Vietnamese domestic demand was lacklustre. However, end-buyers kept up the procurement tempo from China because domestic prices were comparatively higher. For instance, if Chinese prices averaged $581/tonne (t) CNF Ho Chi Minh City (HCMC) over January-April, then Hoa Phat's offers were higher at $600/t CIF HCMC. Formosa prices were even higher at $617/t CIF HCMC. Imports from China offered greater price viability.

Secondly, Vietnam imports steel cheap, value adds and exports to other geographies, including the European Union, Middle East, Southeast Asia, Africa etc. The EU's imports of finished steel from Vietnam over January-February comprised 10% of the total putting it in fourth position, up a whopping 130% y-o-y.

Vietnam does not face quota issues in the EU or the US, allowing it a free rein in exports.

However, other Southeast Asian geographies like Indonesia and Malaysia both are decreasing their dependency on China as the ASEAN region is expecting a massive increase in capacity.

Middle East sees protracted API grades demand: Middle East and North Africa are expected to show accelerated growth in steel demand in 2024-25 after a significant slowdown over 2022-23. Demand has picked up particularly for high-value API grades, especially after several leading oil & gas players announced fresh projects. Demand will sustain from this region for the full year. However, offtake in commercial grades is comparatively slower.

Japan, Korea see slack domestic demand: Japan and Korea both saw a drop in crude steel production in January-April, as both see a drop in home demand, and competition from Chinese exports. Both are facing lacklustre construction steel demand. In Japan especially, high inventories discouraged imports from China.

Outlook

Chinese mill's shipments are booked till July-end, indicating that the upward momentum will continue into the near future.

Chinese steel demand, it is evident, will shift from real estate to manufacturing, automotive, engineering, white goods etc. But, these segments will not be able to match real estate's steel guzzling capacity. Thus, Chinese mills will have no option but to continue with overseas sales.

On the other hand, expanding capacities in Southeast Asia may pose a future challenge to China's hegemony over global steel exports.