Falling Chinese steel exports

So far this year, Chinese crude steel production has been racing upwards and if the 6% growth seen so far continues to the end of the year, the country will have produced more than 851 million tonnes of steel which would be a new record level. Unlike in past years, this growth in output is being channelled into internal infrastructure demand. ISSB have reported earlier in the year that Chinese exports have been falling but this decline has actually been accelerating as the year progressed. The year started with monthly year on year falls of around 25% but September saw a 42% decrease and the October decrease of 36% to 4.9 million tonnes represented the lowest monthly total since February 2014.

The decline has been most evident in long products with exports in the year to date down 59% when compared to last year. The decrease in flat product exports has been much more modest in the same time period, at just under 8%. There was a 41% decrease in shipments to the Middle East, exports to other Asian countries were down 33% and shipments to the EU fell by 35%. Despite this, China still managed to grow exports to some regions. Shipments to South America were up 2%, exports to Russia increased by 27% and interestingly shipments to the three NAFTA countries increased by 10%, mainly due to elevated levels of steel exported to Canada. Exports to the US remained broadly flat but there was a large fall in 2016 following implementation of anti-dumping legislation.

The hike in Chinese steel demand took most of the steel community by surprise this year and although there are currently no signs that the government is reducing its spend on infrastructure, it seems logical to assume that this rate of growth cannot continue indefinitely. Indeed, the World Steel Association is currently forecasting no growth at all next year, with demand predicted to be flat. It could well be that as with this year, this growth figure is on the conservative side but if not, given the sheer volumes involved, it only takes a small percentage decline in demand levels for global markets to be flooded with Chinese steel once again.

You can download a file showing monthly Chinese exports here or alternatively visit ISSB for more information on steel.

blogger@steelonthenet.com

Virus-free. www.avg.com

Chinese export activity

Global crude steel production mid-way through 2017 was 4.5% higher than in the first 6 months of the previous year. Despite much talk about cuts in Chinese capacity, Chinese crude steel production grew by a marginally higher amount. The growth in Chinese production is attributed to the government-led infrastructure push which has maintained very strong demand levels from the construction sector, fuelling demand for products such as rebar and sections. Infrastructure demand does not appear to be weakening with Chinese crude steel production growth in June alone reaching 5.7%, significantly ahead of the rest of the world figure of 0.7%.

The strength of Chinese domestic demand has also had an impact on export levels. In addition to crude steel production growth of 4.6% in the first half of 2017, export volumes have reduced by more than 28% as product is diverted to the domestic market. This trend looks set to continue with the June figure alone reflecting a collapse in export volumes with levels down by nearly 38% year on year, albeit against a very strong June 2016 figure. Export volumes have been trending downwards, relative to the previous year, for the past 10 months.

This decrease in exports has not been seen uniformly across all products, however. It is clearly the products commonly used in the construction sector which have seen the largest decline with exports of hot rolled bars and flats down by 67%. In contrast, flat products have actually not seen much of a decline at all with exports of specific products growing year on year. Exports of CR, for example have grown by 30% and HDG is 4% higher than in the previous year.

A closer look at HDG, one of the products where exports have grown, indicates that Chinese producers have been targeting certain European markets. Shipments to Italy, the UK and Spain have grown by 32%, 42% and 88% to 250K tonnes, 218K tonnes and 194K tonnes, respectively, in the first half of the year. The need for export growth in this product has been encouraged by the decision by Vietnam, the second largest market for Chinese HDG, to impose anti-dumping duties as high as 38% on the product.

Despite the fact that Chinese exports levels are in decline China continues to fill the role of the world's main exporter, with levels more than double those of Japan, the second main exporter. Chinese export activity in 2017 is still likely to exceed 70 million tonnes and so will continue to have a serious impact on the fortunes of the global steel industry. In addition, as more and more markets decide to erect trade barriers to Chinese steel, this is likely to lead to further spikes in exports of certain products to some markets, particularly those less inclined to enact strong anti-dumping legislation.

The text above was prepared by ISSB.

For a file showing Chinese exports split by product for the first half of the year, please visit ISSB for more information on the global steel industry.

blogger@steelonthenet.com

Chinese and other threats to European Rebar Producers

The following extract is from an ISSB discussion about future threats to European producers of steel rebar.

Deformed Rebar is a very important product for certain European long product producers. After Turkey and Ukraine, the other countries in the top five exporters list are the Southern European nations of Italy, Spain and Portugal. It may come as a surprise to learn that Algeria is the most important export market for each of these countries with Italy alone shipping around 1.2 million tonnes of rebar to the country each year. This important market accounts for about 76% of all tonnage exported from Italy and about two thirds of exports from Spain.

Southern European producers enjoy a fairly unique situation in Algeria as a 2005 agreement between Algeria and the EU permits free trade between the two regions and Algeria imposes an import duty on shipments from the dominant player in the market, Turkey. Despite this, however, there are indications that this beneficial situation may not carry on indefinitely.

In a situation familiar in other parts of the world, Chinese rebar producers have identified an opportunity in Algeria and Chinese exports of all HR bars to the country have increased from 131 tonnes in 2013 to 345,000 tonnes in 2015 and a further increase so far in 2016. This already seems to have had the effect of displacing Spanish and Portuguese tonnage as exports from Spain have fallen by 440,000 tonnes in the same period whilst shipments from Portugal were down 141,000 tonnes. The Italian producers seem to be more aggressive in defending their market share, however, with more modest declines.

The long-term threat may not actually be coming from China, however, as in the face of falling tax revenues from the collapse in the oil price, the Algerian government is looking to diversify its industry away from the oil and gas sector. In order to facilitate this, they are looking to invest in steel projects and are mandating that government sector end users prioritise locally produced products over imports. In addition, the government has imposed a two million tonne limit on rebar imports this year and has revoked some import licenses.

On the supply side, Tosyali Algerie has a 500,000 tonne a year rebar mill which started production in 2013 and has initiated an expansion to nearly double its steelmaking capacity, although a timeline for the project has not yet been announced. The old Arcelor Mittal plant, which passed into the government's hands in October has a 400,000 tonne per year rebar mill and it is looking to add another long products mill with a capacity of one million tonnes by 2017. Finally, a joint venture between the state owned steel company and Qatar Steel has been initiated which is expected to have a 750,000 tonne per year rebar mill up and running by the end of 2017.

So far this year Italian exports have increased by 6% and Portuguese exports grew by 21%, offset by a 34% decline in Spanish shipments but how long can European producers hang on to this vital market given the two-pronged assault from Chinese producers and the measures taking place to grow the rebar industry within Algeria itself? Given that combined, these three countries supply well over two million tonnes a year to Algeria, the loss of this market would likely have profound consequences for the rebar industry in Europe.

For further information on steel-related statistics and data, visit http://www.issb.co.uk