Factors that may keep China's steel imports subdued in H2

China's cumulative steel imports in the first seven months (Jan-Jul'21) of CY'21 dropped 15.6% y-o-y to 8.40 million tonnes (mn t), as per Customs data.

During this same period, the cumulative steel exports were at 43.051mnt, up 31% y-o-y.

The cumulative imports of steel billets in this period were at 6.79 mn t, down 16.7% y-o-y. To put the billet imports into perspective, the net imports of crude steel in the first seven months of CY'21 were 29.31 mn t, which is clearly above the total net exports throughout the whole of CY'20, which were at 17.034 mn t.

In Jul'21, China's average import price of steel was $1,348.9/tonne (t), rising 4.84% m-o-m, and 103.48% y-o-y. In contrast, the average export price in this month was $1,339.34/t, up 4.36% m-o-m and up 53.62% y-o-y. The spread between import and export prices narrowed within $10/t.

Imports of steel and primary products

In Jul'21, China imported 1.049 mnt of steel, down 16.2% m-o-m, hitting the year-to-date low. The imports of pig iron and steel scrap were at 94,800 t and 93,200 t respectively, up 118.6% and 14.8% m-o-m respectively. The imports of billets and DRI were at 1.04 mn t and 151,700 t respectively, down 19.9% and 30.9% m-o-m respectively.

The following features are noticed:

• With steel demand from overseas markets steadily coming up, steel prices rose and China's mills willingness to import declined perceivably. From Jun'21, major economies maintained a recovering trend, though global manufacturing seemed to reach a plateau.
  
  
• The Jul'21 PMI in the US and EU were reported at 59.5% and 62.8% respectively, down 1.1 and 0.6 percentage points m-o-m. The PMI in Asia ended its two straight declines, Japan's PMI rose 0.6 to 53% while Korea's PMI fell 0.9 to 53%. Therefore, steady steel demand in overseas markets supported steel prices and China's average steel import prices in Jul'21 saw a noticeable 100% jump y-o-y, well outpacing the increase in its export prices, weighing down the import urge in the process.
  
  
• Import prices rose mainly because extreme weather conditions disrupted collection of scrap and delivery of iron ore and scrap in Europe and North America, which elevated raw material costs, adding $200-250/t of steel-making.
  
  
• The most imported steel items saw reduced volumes and increased prices. In Jul'21, except for pipes that saw a m-o-m increase in both volumes and prices, the other five major steel categories noticed reduced imports. Specifically, steel plates (coils) that account for 70% of the total imports, saw a m-o-m volume decrease of 14.7% and 66.8% decrease y-o-y. Most categories saw rising import prices except for pipes which noted a 7.7% average price drop m-o-m.
  
  
• Changes were noticed in the import sources with Korea's share dropping while ASEAN's share rose. In the first seven months of CY'21, China imported a total of 2.74 mn t steel from Japan, up 4.73% y-o-y. Imports from Korea were at 1.98 mn t, down 31% y-o-y. Imports from these two geographies account for 56% of the total. Japan and Korea, being the traditional exporters to China, took up 73% of the total steel imports during 2010-2019, though in CY'20 the proportion dropped to 49%, reflecting diversified import sources.
  
  

From May'20, ASEAN became the third highest source of China's imports. In the first seven months of this year, China's steel imports from ASEAN were at 1.89 mn t, up 45.6% and a seven-fold rise from CY'20 and CY'19 levels respectively.

Amongst the 10 ASEAN countries, imports from Malaysia registered a total 1.18 mn t, up 34.4% y-o-y while those from Indonesia amounted to 664,000 t, up 86.4% y-o-y.

Outlook

China's focus is on high-quality steel development and a domestic demand-led growth. The production cuts and a sharply lowered focus on exports indicate that the steel produced internally will be consumed within too, lessening the need to import.

Global steel prices are expected to decelerate somewhat due to falling iron ore prices.

At the same time, China has raised export tariffs on ferro chrome and high-purity pig iron from Aug'21, which will tighten ferro alloy and metallics supplies from China which may impact global steel prices and help to keep them firm.

Thus, China's steel imports may stay subdued in the second half.