Chinese steel exports hit 8-yr high in Sep'24; may end 2024 with over 20% growth

• 9MCY'24 volumes show slightly accelerated growth
  
  
• Dumping probes, strengthening yuan may be red flags
  
  
• Volumes may trim down in 2025, but stay supported
  
  

Morning Brief: China's steel exports hit a milestone in September 2024, rising to an eight-year high in a single month. Volumes rose y-o-y a significant 26% to 10.15 million tonnes (mnt) against 8 mnt in September 2023 and m-o-m, by 7% against 9.50 mnt in August 2024.

Over January-September 2024 (9MCY'24) exports recorded a growth of 20% to around 81 mnt against nearly 68 mnt in the corresponding period last year, as per data collated by BigMint.

However, BigMint notes, the pace picked up slightly in January-September 2024, deviating from the reigning trend of a slowed rate. For instance, volumes had increased a decent 30% over January-February but had slowed to 28% in Q1CY'24. January-April figures had chugged at a 25% increase and 23% in the first five months and 22% in H1CY'24. January-July, 2024 volumes grew 20% y-o-y and January-August, by a lower 19%.

China's region-wise steel exports in 9M 2024

Country-wise exports

SE Asia remained the largest steel importer from China with volumes rising 26% y-o-y over January-September to nearly 25 mnt (around 20 mnt in CPLY). Most countries recorded healthy volumes intake due to some restocking activity as China went on a seven-day Golden Week national holiday from 1 October.

Middle East & Africa too showed healthy 22% growth y-o-y to 23 mnt (19 mnt). Most destinations here too showed a healthy m-o-m and y-o-y growth as Chinese offers were attractive.

East Asia grew a modest 8% y-o-y to 10 mnt (9.45 mnt). Among the top three, South Korea showed a marginal 2% y-o-y dip.

South Asia witnessed a 39% increase in January-September to over 5 mnt (4 mnt) and 10% decline m-o-m. Volumes to India rose a slower 33% (2.25 mnt) y-o-y but declined 24% to 0.28 mnt (0.36) m-o-m.

Europe registered a 4% rise y-o-y to 3.29 mnt (3.17 mnt) but dropped 11% m-o-m to 0.37 mnt (0.41 mnt). Anti-dumping investigations from the EU on China are raising a red flag.

Factors influencing Chinese steel exports in Jan-Sep'24

Hectic restocking ahead of Chinese festivals: Most importing countries did some hectic restocking ahead of the Chinese mid-Autumn festival observed over 15-17 September as well as the Golden Week (1-7 October), which acted as a trigger for pushing up overall volumes in 9MCY'24 as well. Domestic demand did rise in a knee-jerk reaction to the cache of stimulus measures. However, these will take time to have a more sustained impact on domestic demand. Thus, China maintained its export focus amid a domestic supply glut.

Robust demand from some importing geographies: On the other hand, some importing countries are showing robust and sustained demand over the past year. Vietnam, one of China's most prolific buyers, is seeing a spurt in steel demand, which is expected to grow by over 14% in 2024 while production is likely to grow at a slower 10%. Finished steel production touched nearly 17 mnt in the first seven months of 2024, up 9.4% y-o-y while finished steel consumption climbed 14.3% to 16.75 mnt, as per a report. Moreover, Vietnam's steel exports were estimated at nearly 5 mnt during this period, up 7%.

The MENA region is also an active buyer. Its steel demand is forecasted to grow almost 5% to 57 mnt in 2024, aided by frenetic infrastructural developments that include railways, high-speed rails, health cities, gas pipelines, vertical farms, next-gen bridges and a lot more.

Predatory pricing lures buyers: China has been luring buyers with its predatory pricing which has been benefitting overseas end-buyers but have been putting pressure on margins of domestic mills across the globe, including India's. The latter withdrew from the exports market from May to only return in October. Chinese offers to Vietnam over January-May were lower by 3% at $581/t CNF HCMC, compared to the Indian $599/t CNF HCMC. Chinese offers fell even further to average $549/t in 9MCY'24.

Likewise, Chinese quotes to the Middle East were lesser by 5% in January-May at $588/t CNF Abu Dhabi against the Indians' $621/t CNF Jebel Ali. China further lowered offers to an average $563/t in 9MCY'24.

Vietnam's domestic mills were pressured but were unable to match Chinese offers. In 9MCY'24, Hoa Phat's HRC offers averaged $572/t, and Formosa's, $586/t, both CIF HCMC, against the Chinese cut-throat $459/t CNF HCMC. Both Vietnamese mills have been steadily decreasing their HRC offers in 2024.

Downside risks

Dumping probes may lead to export hurdles: On the downside, the predatory pricing and dumping strategies are leading to initiation of anti-dumping probes against China from the European Union, Vietnam, and India, while Turkiye has already imposed heavy duties on some steel imports from China, Russia, India and Japan, with the highest tariffs on Chinese imports. The duties, ranging from 6.10-43.31% of cost, insurance and freight, affect around 4 mnt of steel imports with a value of $2-2.2 billion, as per Reuters.

Strengthening yuan a deterrent?: The strengthening yuan may be a deterrent to exports. It gained slightly more than 1% m-o-m at 7.076 to the dollar in September against 7.151 in August. But September and October levels are far stronger compared to the weakest 7.262 seen in July or even the over 7.23 seen in April-June. The yuan has been gaining support from the US' recession worries and its weak labour data and the recent Bank of Japan interest hike.

A stronger yuan may have a squeezing impact on forex earnings of Chinese exporters. China typically exports around 10% of its total output.

Outlook

China is expected to end 2024 with a growth of over 20% in exports at around 110 mnt against 90 mnt in 2023, although volumes are expected to trim down to 90-100 mnt in 2025. The struggle with overcapacity and weak domestic consumption will continue into 2025 despite the booster shots.

But, increasing global demand, especially from geographies seeing hectic economic development, and competitive pricing are likely to keep Chinese steel exports supported to an extent in 2025.

The two red flags are, of course, protectionism and a strengthening yuan. But, probably, Chinese sellers will be able to work out a price zone that will be comfortable to both sides!