China's steel import-export price spread widens to 10-year high in CY'23. What lies ahead?

• Steel export prices plunge 36% y-o-y in CY'23
  
  
• Import prices rise to 9-year high, widen spread
  
  
• Will future focus be on value-added steel, trade frictions?
  
  

Morning Brief: The spread between steel import and export prices in China widened to a record 10-year high of $707/tonne (t) in calendar 2023 (CY'23), as per data available with BigMint.

In 2023, the average price per tonne of steel exported by China was at RMB 6,569/tonne ($914/t) a y-o-y decrease of 31%, ending six consecutive years of increase. Within this quantum, the share of exports of steel items with a unit price of more than RMB 6,000/t ($835/t) was about 38%, or 30 percentage points lower than in the previous year, proving the steady erosion in Chinese steel export prices over the last year. Average export prices fell 36% last year when pitted against the 10-year high of $1,434/t in 2022.

The average price of imported steel, on the other hand, rose to a 9-year high of RMB 11,650/t ($1,621/t), becoming instrumental in widening the gap. The highest import price had been seen in 2022, at $1,647/t.

Data available with BigMint since the last 10 years shows that export prices were higher compared to imports only in 2020, when the world had been beset by Covid woes. In this year, average export prices were higher by a moderate $16/t against import's $832/t.

Are Chinese products losing their edge?

The import-export spread widened mainly because Chinese mills, driven by the lack of demand at home, sold overseas aggressively and at highly competitive offers to capture large chunks of the global market. As a result, China's steel exports touched a six year high of 90 mnt in 2023, a y-o-y rise of 36%, and the highest since 2017.

Affected by the reduced demand for domestic construction steel, China's exports of steel bars, medium-thick and wide steel strips, hot-rolled strips, wire rods, small and medium-sized items and other steel products widely used in the construction industry increased significantly in 2023. In fact, steel bars exports rose 146% y-o-y and medium-thick and wide strips and hot-rolled strips by 97% and 78% respectively.

Conversely, China imported around 8 mnt of steel last year, a y-o-y decline of 28%, which is also the first time that volumes have fallen below 10 mnt since 1995, the year from which data has been recorded.

However, a source from China said, even if the gap between import and export prices has further widened, it does not mean the competitiveness of the country's steel products is declining.

The reasons are mainly as follows:

Global downtrend in prices: Steel prices globally are generally on a downward trend amid the falling currencies, inflation, high interest rates, brought on by geo-political factors. Except in Europe and the United States, globally prices have down-trended.

Weak home demand pressures down prices: Domestic steel demand is insufficient in China and competition has intensified. Some companies have lowered export prices in exchange for steady cash flow returns, which has lowered the average steel export price.

Depreciated currency suppresses export price: The depreciation of the RMB against the US dollar has suppressed China's steel export prices in disguise. A depreciated yuan has been fetching good realisations even if the export offers have been low. For instance, average offers to Vietnam in CY'23 fell by a meaty $115/t CNF Ho Chi Minh City compared to CY'22. Similarly, offers to the Middle East were lower by $127/t CNF Abu Dhabi y-o-y. However, y-o-y export volumes to Vietnam rose 70% in 2023 and to the UAE by 87% and to the entire Middle East and Africa by 18%.

Thus, the higher volumes made up for depressed prices.

Import volume meagre against exports: China's current steel import volumes are less than one-tenth of its exports. Thus, import and export prices are not very comparable. Last year, China's steel exports were mainly to Asia but Africa and Latin American are rapidly emerging as key markets too.

Exports to Asia last year accounted for 68% (of the total 90 mnt) at 61 mnt, up 43% y-o-y. Volumes to Latin America and Africa were at 11 mnt and 10 mnt, rising 44% and 24% respectively.

In comparison, imports of primary steel products (including billets, ingots, pig iron, DRI, and scrap) were down 49% y-o-y to 4.60 mnt.

Outlook

• China's steel and billet exports account for about 9% of its domestic crude steel production, which is significantly lower than the over-35% in Japan, South Korea, Germany and Turkiye. China's steel exports to Asia account for more than 50% of total exports, and that to Europe and the United States a mere 7%. But, in the long run, China's steel export share in Europe and the United States may further decline amid possible further US trade sanctions and Japan's globalization drive.
  
  
• Steel production capacity in Southeast Asia is increasing rapidly, and exports from here are also seen growing along with a broadening of quality and range. At the same time, Japan and South Korea are moderately lowering export prices to ensure their share of steel exports. In such a scenario, the cost advantage of China's steel exports may gradually decline. Thus, future endeavours should be around high-end and green steel that will offer better margins.
  
  
• China's steel exports have maintained a growth trend since 2021 and are expected to account for more than 20% of the global seaborne steel trade in 2023. However, anti-dumping incidents have also increased, cautioning importing countries to put up anti-dumping barriers. As per provisional data, countries slapped a total of 112 anti-dumping and countervailing duties on Chinese steel products in 2023, an increase of about 20 cases y-o-y. Thus, China needs to be alert to the risk of intensifying trade frictions.