Chinese steel exports likely to rise about 10% in CY'23

• Volumes rise 41% y-o-y over Jan-May
  
  
• Low domestic demand, sliding currency encourage exports
  
  
• Some importing geographies show good demand
  
  

Morning Brief: Although the Chinese government, a few years back, had taken a decision to export only value-added, high margin special steels, the reality has turned out to be somewhat different. China's steel exports are expected to rise by an estimated 10% to touch over 72 million tonnes (mnt) by the end of calendar 2023, as per SteelMint's forecasts. Total volumes in 2022 had been at around 67 mnt.

Exports in January-May, 2023 have already risen a substantial 41% y-o-y to over 36 mnt compared to 26 mnt seen in the same five months last year, data shows, giving an indication of the trend that is likely to roll out for the rest of the calendar.

What factors will keep China's steel exports elevated?

Domestic production high but demand low: Domestic demand in China has not exactly lifted over the last many months, belying expectations. Investment in the real estate construction sector, the largest consumer of steel, from January to May, 2023 was down 7.2% y-o-y. In this, the share of residential construction investment was down 6.4% y-o-y. Property sales dipped almost 1% in January-May this year while housing inventories swelled 16% y-o-y by end-May. On the other hand, production has risen to touch almost optimum levels. In fact, by end-June, the blast furnace (BF) capacity utilization rate among 247 Chinese steel mills had reached a new high of almost 92%, a level not seen since early March 2021. Naturally, Chinese mills have been looking at exports as a key channel for offloading their inventory.

Currency depreciation makes exports attractive: The Chinese currency has depreciated almost 7% against the dollar since the beginning of the current calendar. This has increased the competitiveness of exports. Therefore, even if mills have been exporting at eroded offers, the attractiveness remains.

Demand high from some importing geographies: Although, globally, steel demand has been subdued, demand from certain geographies has been good. The Middle East and North Africa (MENA) region, for instance. In January-May, volumes to this geography were the highest, rising 63% y-o-y to 10 mnt against 6 mnt in the same period last year. In the Middle East, the focus is slowly shifting away from oil-related infrastructure in a bid to speed up the economies here. Therefore, a slew of infrastructure projects, running into multi-billion dollars, is under way in the UAE, Qatar, Oman and Kuwait. These are necessitating copious volumes of steel imports.

Southeast Asia is following close on the heels of MENA. Although m-o-m, in May, demand from this region tripped slightly, there has been a 20% y-o-y increase in Chinese steel imports at 10 mnt in January-May compared to 8 mnt in the same period last year.

Inflation in several of the Southeast Asian economies has been making imports of cheaper Chinese steel more viable. Also, a pick-up in Chinese-backed infrastructure projects in this region has also spurred steel demand, especially from Indonesia.

Click here for region-wise steel exports

Demand from Vietnam, one of China's chief buyers, however, was down 15% m-o-m in May and up a moderate 11% y-o-y in January-May as the construction sector's performance has been sluggish in this country.

But, overall, demand outlook from Southeast Asia is positive because of the price viability factor.

Demand recovery to be slow

The uncertainty in the real estate sector is expected to continue, which will make domestic demand recovery a slow process. However, in the second half (H2), some more stimulus measures cannot be ruled out, which will inject confidence into the property market.

The Chinese currency is also expected to regain some lost sheen in H2 although it will be difficult to return to the level seen at the beginning of the year.