Chinese indirect steel exports to rise over 125 mnt in 2024. What factors are driving this growth?

• Automotive sales accelerate amid rising global demand
  
  
• China edging out Korea, Japan in ship-building output
  
  
• Global protectionist measures may not impact China
  
  

Morning Brief: China's indirect steel exports, which have been showing a healthy growth trend, especially over the last three years, are likely to end calendar 2024 with a 9% increase to around 127 million tonnes (mnt).

Data maintained with BigMint reveals, indirect steel exports grew around 3% in 2023 to 116 mnt. In fact, these exports have more than doubled over the last decade from around 67 mnt in 2014 to the current levels.

Interestingly, over 50% of China's exported merchandise comprise machinery, components and other items related to steel. China exports around $3.5 trillion of goods annually. In 2022, this rose to $3.73 trillion, boosted by the post-Covid pent-up demand and also because the Russia-Ukraine war resulted in abnormally high energy prices in Europe which increased the cost of manufacturing. Although exports dipped to $3.40 trillion in 2023, global demand for Chinese indirect steel imports remains high due to price viability.

The trend so far in 2024 indicates a rising trend. For instance, data from the General Administration of Customs (GACC) reveals, over January-April, 2024, China exported RMB 4.62 trillion ($634.7 billion) worth of mechanical and electrical products, an almost 7% y-o-y increase. This volume also represented 59% of China's total export value.

In January-May, 2024, China's overseas trade value increased 6.3% y-o-y to RMB 17.5 trillion, within which exports rose over 6% y-o-y to RMB 9.95 trillion, according to Customs data.

What factors are supporting China's indirect steel exports?

High automotive exports: China's automotive exports have accelerated post-Covid. Car exports climbed up from around 1 million units (MU) in 2020 to nearly 5 MU in 2023, as per data from the China Association of Automobile manufacturers. Most cars shipped to the US and Europe comprise electric vehicles (EVs) but the bulk of Chinese automotive exports comprise conventional cars to Asia and Africa. EV sales to Europe have been rising the most. EV's share in China's total car exports rose to 25% from 15% in just two years. The acceleration can be attributed to China's cost competitiveness which makes the pricing comparatively lower compared to those domestically produced in Europe and the US. However, on the flip-side, quality concerns remain a major factor with western buyers.

As per data, auto exports consumed 8 mnt of steel in 2023, a y-o-y rise of 19% and is expected to increase a further 19% to 9.5 mnt in the current year.

China becoming ship-building hub: Move over Korea and Japan as China emerges as the global ship-building giant. Data reveals that China's ship-building output rose over 12% to 38 million deadweight tonnes (DWT) in the first 11 months of 2023, allowing it to capture 50% of the global market in this space. A flurry of new orders followed, taking up China's share to 66% last year. The current year is expected to see ship-building exports rise 13%, consuming 16 mnt of steel from 15 mnt last year.

Rising energy transition demand: China's clean energy exports grew a significant 35% over 2019-2023, driven by competitive pricing, and frenetic production capacity development. In fact, clean energy investment rose 40% in 2023 to RMB 6.3 trillion ($865 billion).

China experienced a significant increase in solar product exports in 2023. Solar wafers rose 90%, cells by 72% and modules, 34% y-o-y. However, due to falling costs, the export value of these products only increased 3%.

Machinery exports to Russia increase: Thanks to the western sanctions slapped on Russia, because of its war on Ukraine, China seized the opportunity to increase exports to Russia. China's exports to Russia, include machinery, vehicle-related items, and dual-use technologies. Machinery exports started rising from September 2022 and hit a peak of $2.31 billion in January 2024. Currently, these are at around $2 billion.

China's manufacturing remains supported

Although real estate construction, the highest consumer of steel, is doing poorly, indirect steel consumption is keeping its crude steel production bolstered. For instance, data corroborates that China's manufacturing investment growth averaged 8.86% over January-May, 2024 against a lower 7.18% in the same period in 2023.

Outlook

Within the expected 127 mnt of indirect exports, machinery is expected to contribute the most, at around 43 mnt while containers may see the sharpest growth of 45% y-o-y.

China's direct and indirect steel exports are expected to total over 220 million tonnes this year, according to a report.

Although, countries across the globe are adopting protectionist stances, especially with regard to EVs, to keep their domestic manufacturing secure, this may not impact China's indirect steel exports since automotive may comprise only 9.5 mnt within the entire 127 mnt of indirect exports.