China's steel production curbs tighten, export volumes fall 3% m-o-m in Sept'21

The Chinese government recently brought more steel-producing provinces on the radar and is deepening its production curb norms to attain the dual goal of reduced exports and production volumes. In Sept'21, steel export volumes stood at around 4.92 million tonnes (mn t), as per recent data shared by the General Administration of Customs (GAC), China.

On a monthly basis, the volumes fell by 3% levelling with the export figures of Feb'21. However, it spiked by 28% on an annual comparison. During (Jan-Sept) 9MCY'21, the volumes aggregated to 53.02 mn t, up by 31% contrasted against 40.39 mn t in CPLY.

What factors are impacting export volumes from China

1. Vessel and container availability a challenge: With the outbreak of the secondwave, logistical issues arose. It was compulsory for vessels to follow quarantine measures and wait on the high seas before getting berthed. This led to a shortage of containers and congestion at ports, slowing down global trade.

2. Removal of rebates, uncertainty around export tax announcement: The Chinese government cancelled rebates provided on HRCs, CRCs and HDGIs by early May'21 in an attempt to curtail production and exports. Furthermore, the market is awaiting clarity on the imposition of an export tax on HRCs since the initial rumour heard in mid-May'21. This has led to limited exports as buyers were concerned about probable losses arising out of a tax imposition.

3. Production curbs turn more stringent: The initial production curbs from Mar'20 to Sept'20 got extended up to Mar'21 yet failed to put a dent in the production volumes of manufacturers. Thus, the government started tightening the norms and asked producers to limit their production to CY'20 levels. Also, recently, power outages and coal shortage emerged as new hurdles for the Chinese steel industry. Thus, restrictions on production also impacted export allocations.

4. Increased competition from overseas markets: The competition in the overseas markets has increased with fairly low offerings from India and Russia in the South East Asian markets. For instance, Chinese mills were not quoting offers for HRCs lately to the Vietnamese market, but the above-mentioned countries, witnessing limited domestic market demand, were on constant lookout for export opportunities in the past couple of months. Recent offers from Indian mills for HRCs (SAE1006) stand at around $890-910/t CFR Vietnam while Russian mills are quoting $870-880/t CFR basis.

Outlook
Winter production curbs to extend further until Mar'22

Recently, the government asked more steel mills in the northern provinces to cut production from Nov'21 until Mar'22 in order to reduce smog levels and maintain the production levels of the previous year.

Furthermore, the reduced number of working days amid the Golden Week holidays in Oct'21 and low preference from the traditional export destinations might also keep the export volumes in check.