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.

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The steel sector in Vietnam

When compared to its larger Asian neighbours, Vietnam is a relative minnow in terms of its steel market but it is also the fastest growing in the region. In the five years to 2016, apparent consumption has more than doubled to 22.3 million tonnes with a 22% growth in last year alone. This growth has seen a similar rise in Vietnamese imports which have also more than doubled in the five year period to 2016 to reach 19.5 million tonnes. As would be expected, by far the largest external supplier to the country is its neighbour China, accounting for 60% of all imports last year. Vietnam is also an important market for Chinese producers, being the second largest behind South Korea.

With a steady increase of over 6% in the country’s GDP forecast for this year, a similarly favourable outlook for the construction industry and an automotive market that was the second fastest growth market globally last year, it would seem that Vietnam is an important market for Asian steel producers going forward.

This may not actually be the case, however. Traditionally Vietnam produces relatively large amounts of long products as well as cold rolled and coated flat products. These producers rely on hot rolled feedstock from abroad, however, as the country lacks the facilities to produce HRC, which makes up around half of all imports into the country. This is a situation that the authorities in the communist nation are looking to address. According to the Vietnamese Steel Association’s Vice Chairman, in the next five years, the trade deficit in the steel industry is expected to decrease as two steel makers, Hoa Phat and Formosa, start to produce HRC. In order to achieve this aim, the Ministry of Industry and Trade is going to apply trade defence measures to ensure fair competition with import products.

So far this year, Vietnam also has the fastest growth in steel output of any country in the world. In the first half of 2017, crude steel production has doubled to 4.7 million tonnes. This has come at the cost of imports, which have declined by around 20% in the same period, the first year-on-year decrease in imports since the fallout from the global recession post-2018.

It would seem then, that the measures put in place to boost the domestic steel industry are working, and at the detriment of imports from overseas suppliers. So far, given the strength of the steel market in China, this has not had a detrimental effect on the world market due to displaced tonnage but another fast developing steel market investing in internal capacity and erecting trade barriers cannot be a long term benefit for the global industry.

The text above was prepared by ISSB.

You can download a file showing exporters to Vietnam last year by visiting the ISSB website.

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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

Impact of Brexit on UK steel sector

The following extract is from an ISSB discussion about the probable impact of Brexit on the UK steel sector.

There has been much conjecture over both the short-term and long-term effects of the UK referendum vote to leave the EU but how will the result effect the steel industry in the country? The simple answer is of course that no-one knows for sure but there are some things we can look into.

One important aspect is the effect the vote will have on markets for steel products, and in particular the key automotive and construction sectors. The UK automotive sector has been a success story over the past few years with SMMT figures showing a 13.6% rise in production in the first five months of 2016. The successful future of this industry will most likely hinge on whether the UK can retain its free trade deal with the EU, an outcome viewed as likely given the importance of the UK as a premium market for German manufactured vehicles. In the short term, however, the uncertainty is thought to lead to a slow-down in growth for the industry.

The factors affecting the construction industry are rather different. Although the market has been strong in recent months with an estimated 9% growth in steel-intensive heavy construction based on heavy section sales, the Brexit vote brings uncertainty to the industry. The share price performance of the UK's listed construction companies hints at the fact the market is viewing a slowdown as likely with the construction of large steel-intensive buildings reliant to some extent on the economic health of the country as a whole. The industry may also experience cost inflation, particularly in regard to worker wage inflation if restrictions are placed on skilled EU workers entering the country.

While the outlook for the markets for steel products is mixed, the vote could potentially offer some hope to the steel industry. The UK steel industry has undergone an unprecedented period of turmoil over the past year with issues such as aggressively priced Chinese imports and expensive energy costs given as factors. In leaving the EU, Britain should be able to self-determine more effective solutions to both of these issues should the political will be forthcoming.

If domestic markets are about to enter uncertain times then more importance may be given to UK exports. One immediate effect of the Brexit vote was the depreciation of sterling. In just one month, the pound has fallen by 8% against both the US dollar and the euro which is a very significant slide in forex terms. This has the effect of making UK produced goods much more competitive in export markets and although raw material prices such as iron ore and coking coal will become relatively more expensive too, the steel scrap price will not be affected by currency movements.

Again, the success of the export market will likely depend on trade agreements struck with the US and the EU in particular but a look at the trade figures suggest an agreement should be in the best interests of many other EU nations.

The EU as a whole is the most important export market for the UK for finished steel. In Q1 of this year 685K tonnes of steel was shipped to the region, accounting for just under 65% of the total exported. Germany, Ireland and Belgium were the most important single markets in the EU, although it should be noted that non-EU Turkey was the largest market for UK produced steel.

Of importance, however, is the fact that this export figure was dwarfed by the import tonnage, with imports from the EU accounting for 71% of the total with the tonnage from the EU being nearly twice that of exports, at 1.2 million tonnes. This means that the UK is a large net importer of finished steel from the EU. In Q1, the UK imported more than 100K tonnes from each of the following member states: Germany, Spain, the Netherlands, Belgium and France. The UK was also the second largest "non-EU" destination for German steel after Switzerland, itself a member of the European Free Trade Association.

Whilst the British vote to leave the EU will likely cause heightened uncertainty and risk and much depends on the political will and diplomatic nous of the leaders of the country, it seems clear that there are potential opportunities for an industry that has suffered its fair share of issues over the past year.

For further information visit the ISSB website at http://www.issb.co.uk or check out http://www.steelonthenet.com for the latest steel news.

blogger@steelonthenet.com

ISSB News - Chinese steel production in March 2016

The Iron & Steel Statistics Bureau today comment as follows on Chinese steel production levels in March 2016.

“The decline in Chinese domestic demand for steel has been well documented and there had been reports in the press of government plans to cut some of the older, more polluting capacity and to reduce annual production by around 150 million tonnes in five years. There has been very little evidence of any progress being made in this regard, however, as although Chinese production fell by 3% year on year in the first quarter, the traditionally strong month of March actually saw production increase by 1% to 70.7 million tonnes which, incredibly, represents the highest ever monthly production figure from the country”.

To read more visit http://www.issb.co.uk or visit our website at http://www.steelonthenet.com for other news.

Andrzej M Kotas