Japan diversifies steel exports in CY'23 amid stagnant Asian market

Japan's steel exports continued to rise outside of Asia. Ministry of Finance trade data shows that in 2023, non-Asian countries received 30.1% of the 32.36 million tonnes (mnt) (including stainless steel) of steel exported, marking the first time since 1998 that the level reached 30%. This increase comes amid a decrease in exports to neighbouring Asian countries. This decrease is driven by sluggish steel prices in Asia, particularly impacted by the Chinese economy, while markets in Europe offer higher prices and strong demand for imported steel.

In 1998, when over 30% of the country's steel exports went to countries outside of Asia, the Asian currency crisis had a major impact. To counter this, the country significantly increased exports to the U.S., a non-Asian market. It shipped around 7 mnt of steel to the U.S., which was 2.5 times more than the previous year.

Steel exports to the U.S. have stagnated in recent years, unlike previous periods of growth. Factors like anti-dumping measures (AD) and Section 232 tariffs restrict sales. As a result, exports are expected to stay around 1 mnt in 23 years. Meanwhile, exports to the EU reached 2.03 mnt.

EU safeguards its steel industry by limiting imports through quotas, on a wide range of steel products. These quotas allow a certain amount of steel to be imported without tariffs. In the majority of cases, Japan falls under the large "global quota" shared by many countries, so the import limits are relatively high.

Japan is using a "duty-free quota" to boost its exports of hot-rolled coils, cold-rolled coils, and thick plates to the EU. The restructuring of major European steel companies has created an opportunity for European manufacturers to diversify their procurement sources. As a result, there is a growing interest in importing steel products. Moreover, management instability at ThyssenKrupp and Italian Steel (formerly Ilva), along with the expected decrease in domestic steel production driven by higher costs and the shift towards decarbonization, is likely to cause a decline in the sector.

Despite strong Asian demand, European exports face obstacles due to trade restrictions, geopolitical tensions, and the recent disruption caused by the Suez Canal blockage. The recent attack on ships in the Red Sea following the Gaza conflict forces steel shipments to Europe to take the longer Cape of Good Hope route, bypassing the Suez Canal. This will significantly impact costs and delivery times. The volatile overseas steel market in recent years makes price negotiation even more difficult for both manufacturers and customers due to rapid price fluctuations.

Some Asian countries are looking to sell more steel to Europe instead. Vietnam is increasing its steel exports to Europe amid Mexico's recent tariff hikes. This has led Vietnam to compete with Japan for the EU's steel import quota. The EU's steel imports are still dominated by Asian countries including India, South Korea, China, and Taiwan. However, the EU is taking a more cautious approach towards steel imports in general.

The EU's safeguard measures on steel are due to expire in June, but European steelmakers want them extended. It's unclear if they will be lifted. These measures can only last eight years under World Trade Organization (WTO) rules, and the current ones, introduced in 2018, might be renewed until June 2026. However, EU is ready to introduce full-fledged carbon border adjustment mechanism (CBAM) for 2026, raising concerns that restrictions on steel imports might continue even after the SG expires.

Potential trade barriers are on the rise as countries like Turkey and South Africa initiate investigations on steel imports. This comes amid growing steel production capacity in India, Southeast Asia, and the Middle East, fueled by China's economic slowdown. As a result, the steel export market is expected to stay highly competitive.

Note: This article has been written in accordance with an article exchange agreement between Japan Metdal daily and BigMint.