China's steel exports rise over 40% in Q1; will momentum sustain next qtr?

China's steel exports showed a healthy 44% y-o-y increase in the first quarter (January-March) of 2023, reveals data maintained with SteelMint. Q1 volumes rose to almost 19 million tonnes (mnt) compared to 13 mnt in 2022.

What factors helped China increase Q1 exports?

Crude steel supply-demand mismatch: China's crude steel output in Q1 touched 261.56 mnt, up 6.1% y-o-y while finished steel output was at 332.59 mnt, up 5.8% y-o-y.

On the other hand, apparent crude steel consumption in Q1 was 243.42 mnt, up a mere 1.9%, which is more than what CISA anticipated, indicating that the economy is in recovery mode.

But, it can be seen that crude steel output outpaced the growth in demand. In March in particular, daily output was close to 3.09 mnt, a record high for this month. Sources indicated that if output is maintained at this rate, the entire calendar's production will reach 1.13 billion tonnes, which would be more than an additional 100 mnt y-o-y. "No way can such volumes be consumed in China domestically, and will lead to price reductions. Demand is turning around but the pace is just not catching up with the supply increase," a source from China told SteelMint.

As per SteelMint's data, in Q12023, China's average FOB prices of benchmarked hot rolled coils (HRCs) were at $665/t, down 19% from $821 in Q12022.

Upturn in global trade indicators: From the end of 2022 to the first quarter of 2023, there was a significant improvement in global economic and trade indicators, which supported the rebound in steel demand and the significant growth in China's Q1 steel exports.

Focus on regions without trade barriers: That apart, China was predominantly focused on geographies without trade barriers. It faces anti-dumping issues in Europe and the US and so concentrated on Southeast Asia, Middle East, South Asia and other geographies, including Turkiye, from where it received substantial orders.

Region-wise steel exports

Southeast Asia: This geography has regained its spot as China's leading importer. Export volumes to Southeast Asia in Q1 rose a hefty 44% to 5.80 mnt against 4 mnt in the same quarter in 2022. It was Vietnam all the way, whose imports from the dragon country rose 86% to 1.87 mnt (1.01 mnt in Q1, 2022).

"In Q1, all mills, whether Vietnamese, Korean, Indian or Japanese, were focused on the EU market because they wanted that lucrative $800/t price to Europe! Southeast Asia was starved of competitively priced material and sourced from China," said a source.

Moreover, by the end of Q1, Turkiye was well stocked up, and China's entire focus shifted to Vietnam and other countries keen to buy.

Middle East & Africa (MEA): Q1 volumes here rose a whopping 75% to 5.26 mnt (3 mnt in Q1CY22). This region was starved of material because it does not any have indigenous mill to speak of, especially for flat products.

Turkiye was a good sourcing destination but was out of reach mainly because of supply disruptions that ensued post-the earthquake.

Imports from Russia were viable, but the sanctions were a spoke in the wheel while the Indians held on to their steeper prices. Therefore, the UAE only had China to fall back on.

Turkiye was the top-most importer from this region with a 193% increase to 0.93 mnt (0.32 mnt). The earthquake warranted huge requirements of steel for reconstruction work. So far, no reconstruction plan has been officially announced by the government but the beleaguered country started buying in Q1 to stock up well at Chinese prices that dropped steadily.

East Asia (JKT)

Japan-Korea-Taiwan (JKT) saw steel imports from China rise a moderate 56% in this period to 2.73 mnt (1.75 mnt in Q1CY22) with Korea leading the list with volumes up 65% to 2.17 mnt (1.31 mnt).

Korean end-users started importing Chinese material because it was more competitive compared to the other global offers. Japan's own offers averaged $665/t FOB and the Indians' $689/t FOB, whereas Chinese were at $665/t FOB.

South Asia: Volumes rose 20% to 0.84 mnt (0.70 mnt in Q1CY22). Imports to India were the highest, growing 56%, although on a small base, to 0.38 mnt (0.25 mnt).

However, the ground reality is that China did not sell much to India. Most of the material that landed were API-grade HRCs, bought by pipe manufacturers for value-addition for onward sales to the Middle East to fulfil gas pipeline orders. "The bulk of it was API-grade for re-exporting and not domestic consumption," corroborated a source.

European Union: Exports to the EU saw a nominal 5% growth to 0.92 mnt (0.87 mnt).

The growth was limited partly because of the higher energy costs which hamstrung demand. Moreover, there is an anti-dumping policy against Chinese steel flowing into the EU.

Outlook

China, sources say, is sold out till June-end and Q2 export figures may be higher than Q1's considering the pace at which it is selling to Southeast Asia, Middle East, and East Asia.

Moreover, if its production rate sustains, it will need to offload the material offshore, going forward. The momentum to Southeast Asia seems to be continuing in Q2. As per sources, a prominent mill shipped two cargoes of HRCs of 25,000 t each to Vietnam at $640/t CFR last week.

In Turkiye, enough restocking has taken place and it may go slow in Q2, supported by the fact that its own mills, which had sustained minimal damage from the earthquake, have come back to production.

But if the EU slaps further sanctions on Russia, especially with regard to semis, then China's billets/slabs exports could escalate.

However, sources in China feel exports may lose momentum in the long term as more than 95% of the steel produced will be used to meet domestic demand.