Steel exports from top 20 countries drop in Jan-Jun; trend may sustain in H2

• Global steel exports drop 13% in H1, Ukraine sees highest decline
  
  
• Russia-Ukraine war hits demand as world grapples with inflation
  
  
• H2 volumes may fall below 400 mnt amid war impact
  
  

Morning Brief: The global seaborne steel trade from the top 20 countries dropped by around 13% to 146 million tonnes (mnt) in January-June, 2022 (H1), compared to 167 mnt in the corresponding period last year (CPLY), reveals SteelMint data, a y-o-y drop of about 21 mnt.

Total steel exports from the top 20, who contribute over 75% of the total seaborne steel trade, was at 328 mnt in January-December, 2021.

Meanwhile, total global steel export volumes in

2021 amounted to 425 mnt, an increase of 6.25% over 400 mnt in 2020.

Ukraine sees the steepest decline

Data also indicates that Ukraine experienced the highest drop in steel exports in this period, by 69%, to a mere 2.51 mnt. Russia also showed a sharp over-30% decline to around 10 mnt. There has been a straight 8-mnt tumble between Ukraine and Russia, in a direct fallout of the war.

Interestingly, among the top 20 exporters, all, except six, have shown a y-o-y decrease. Most of these six bucked the trend because of their high export exposure to the US, where prices reigned high. But Brazil's steel exports to Europe, in particular, skyrocketed 710% in H1 of 2022 as it filled in the void left behind by Russia and Ukraine, helping it to keep its overall volumes up.

China, of course, continues to lead the top-20 pack with 33 mnt in the period under review, a y-o-y drop of 10% (37 mnt in CPLY).

Factors impacting steel exports

• Russia-Ukraine war fallout: The single-most important factor that contributed heavily to the drop in the seaborne steel trade in H1 is the Russia-Ukraine war. It led to the blockade of the Black Sea trade, widespread western sanctions on Russia, the latter's retaliation in the form of energy politics and the ensuing inflation.
  
  

Russia's gas supply curtailment to Europe resulted in an aggravation of the energy crisis, the seeds of which had been sown in the post-Covid recovery period of 2021 - when utilities were unable to cope with the unprecedented surge in demand.

The EU has depended for years on Russia for around 40% of its natural gas supply. But with Russia cutting of the Nord Stream 1 shipments to the EU by almost 89%, energy prices have spiralled to record highs. Cost of electricity in the EU, most of it gas-fired, surged 50% y-o-y in July, 2022. As a result, steel end-user demand suffered a setback, leading to the eventual drop in exports.

• Inflation reduces purchasing power: The present inflation is a function of the war. Escalating energy prices have a cascading effect on the value chain and fuel an across-the-board price increase. Inflation has dampened downstream demand for steel, which has dented export demand as well.
  
  
• Post-Covid resurgence a one-off?: It may be noted that volumes (425 mnt) seen in 2021 rose against the unleashing of an unforeseen post-Covid pent-up demand. The volumes seen so far in 2022 suggest that the post-Covid economic spree has subsided and, in fact, has been replaced by the bearish spin-off of the war.
  
  

India slips to 6th slot

India dropped down one notch to sixth ranking in the top 20 list from last year. India has not contributed to the H1 drop - although its steel exports plunged from end-May in a knee-jerk reaction to the 15% duty slapped by the government. This is because all its shipments till June comprised previous bookings. The impact of the export tax will be felt from the second half of the current calendar, ie, July onwards.

Outlook

The second half (H2) of the calendar would continue to remain bearish because factors like the energy crisis and the ensuing inflationary pressures will persist which will, in turn, keep steel demand low.

Considering these factors, SteelMint estimates that total seaborne steel exports by end of the calendar may possibly remain below 400 mnt.