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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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.

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Chinese stimulus will be good for steel demand

According to a recent MEPS report, the thrust of the recent Chinese stimulus package will favour steel industry demand. Investment is to be increased by Government in infrastructure projects. Subsidies will also be given to the domestic appliance sector in order to produce more energy-efficient products. Funds are also being released to build two new major steel plants in the south of the country.

 

The main impact of the stimulus – which centers on expansion of investment in infrastructure - will be to provide a boost to the producers of long steel products – meaning reinforcing bars, wire rod and structural sections. The stimulus will thus cause a significant rise in Chinese steel demand.

 

For original MEPS report, visit http://www.meps.co.uk/ChinaSteelNews0512.htm

 

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