China's steel imports fall over 25% in CY'23 on slack demand, weak currency

• Falling offers discourage exporting countries
  
  
• EU focuses on imports amid rising domestic prices
  
  
• Imports to remain low if China demand rebound eludes
  
  

Morning Brief: Steel imports into China, the highest consumer of this commodity globally, fell 28% y-o-y in calendar 2023 (CY'23), reveals data maintained with BigMint. Total import volumes dropped to under 8 million tonnes (mnt) last calendar compared to around 11 mnt in CY'22.

Imports into the dragon country from across geographies fell. Japan-Korea-Taiwan (JKT) led the charts but imports from here declined 26% to 5.50 mnt in CY'23 (7.50 mnt in CY'22). Exports from Southeast Asia showed a 36% drop to 1.25 mnt (2 mnt) while Europe showed a 22% fall to 0.61 mnt (0.78 mnt).

Factors that pulled down China's steel imports

Declined domestic steel demand: China's domestic steel demand has been falling especially after its real estate sector, which contributed an extraordinarily high percentage to its GDP, fell into a crisis a few years back amid changing demographics, slowing urbanisation and a steel over-supply scenario. This trend continued into last year, goading mills to explore export opportunities aggressively amid rising inventories. In such a scenario of inadequate domestic demand, a fall in steel imports is not surprising.

Depreciating currency: The Chinese yuan fell around 9% to the dollar in CY'23, making imports costlier. End-users, especially from the construction sector, already pressured by lack of demand and squeezed margins, did not look upon imports as a viable option even though exporters reaped the benefits of a depreciated yuan.

Japan, Korea steel exports muted: JKT, which was the highest exporter to China, saw volumes dropping 26% y-o-y amid muted demand. Japan led with nearly 3 mnt and yet this was a 29% drop from 4 mnt in CY'22. Japan's steel exports were up a mere 2% in CY'23 as global demand was sluggish and also because its own domestic consumption rose, especially in automotive and shipbuilding, not leaving much room for exports amid a fall in crude steel production by 2.5% in 2023. Plus, Japanese mills have been shifting focus to high-value products, while Chinese end-users preferred low-priced commercial grades.

Korea's exports to China fell 21% y-o-y to 2 mnt (3 mnt) as it exported in larger volumes to Japan and India, especially since it has a free trade agreement with the latter. Its steel exports rose a nominal 7% last year amid the challenges of a global and domestic real estate market slowdown, rising raw materials costs, cheaper imports and falling export prices.

Southeast Asia exporters discouraged by price under-cutting: Imports from Southeast Asia fell 36%, driven especially by lower volumes coming in from Indonesia and Malaysia. While China's lack of appetite slowed imports, falling commodity prices also discouraged these countries from exporting. China, of course, contributed majorly to this price under-cutting by slashing its own export offers to capture large chunks of the global market. To reduce their dependency on China, these countries are also keenly exploring alternative export markets as well as value-added downstream products -- which will fetch higher realisations.

EU challenged by tight domestic supply: China has not traditionally been a large steel importer from Europe. Last year's volumes fell 22% to 0.61 mnt (0.78 mnt). Europe itself had its own reasons for selling less to China. One, its own crude steel production (EU-27) was lower by 7.4% last year as many blast furnaces faced closure amid emission issues. This obviously limited supply of finished steel and raised domestic prices. Secondly, EU buyers resorted to importing from India, Vietnam and Turkiye to avoid the high-prices domestic material. Thirdly, China's own loss of appetite also contributed to the lower volumes.

Outlook

Late last year, officials from the China Metallurgical Industry Planning & Research Institute (MPI) had said at a press briefing that steel demand in 2023 was expected to decline by over 3% y-o-y and in 2024 by a further 1.7%. The government is of course fighting to lift consumption through various stimulus measures. However, if China's domestic demand fails to turn around this year amid a struggling construction sector, then its steel imports will continue to remain under the weather.