Chinese finished steel exports rebound by 5% in Sept on dull domestic demand

Chinese finished steel exports increased by 5% m-o-m to 3.85 mn t in Sep '20 against 3.68 mn t in Aug'20, as per the recent data released by the General Administration of Customs. Chinese mills shifted their attention to overseas markets with domestic trades getting impacted by falling steel futures and rising inventories.

Factors driving export volumes from China are:

• Crude steel output hit an all-time high in Aug '20: China's crude steel output hit a new high with 94.85 mn t of crude steel churned out in Aug '20, up by 2% against the previous high of 93.36 mn t in Jul '20. The same was up by 9% as against 87.25 in Aug '19. Thus, higher production and limited trades in the domestic market will leave only one alternative with Chinese mills to export material in overseas markets.
  
  
• Higher inventories- As per inventory data maintained by SteelHome consultancy, at the beginning of Sep '20 inventory of HRC coil with the mills stood at 3.35mn t which increased to 3.44 mn t towards the end of Sep. Piling up of inventories on lower buying resulted in to drop in domestic prices. Thus mills shifted their interest by slashing offers.
  
  
• Sluggish demand- In Sep '20, demand in the domestic steel market was not as robust as the market had expected. Moreover, China's domestic steel demand expectations for Sep-Oct has been excessively positive, bringing down the HRC futures contracts sharply. In a cascading effect, the fall in futures has also brought down China's export prices.
  
  
• Competitive HRC export offers to attract importers- Competitive prices attracted importers based in Vietnam and Pakistan amid increasing offers from all the major exporting nations. This resulted in an increase in the nation's export volumes. Also, the absence of Indian export- provides enough room for China to export HRC at competitive prices. Towards the beginning of Aug '20 Chinese mills were offering HRC at $485-490/t Fob for Sep-Oct shipments.
  
  

However, during Jan-Sep '20 the Chinese steel export volumes fell by 20% to 40.38 mn t against CPLY.

Outlook- Steel export volumes might soften in the upcoming month, since the Tangshan govt has announced fresh production curbs until Mar '21. In addition to this, the increasing steel capacity in Vietnam might lower reliance on HRC imports from China.