China, the world’s largest steel producer and consumer, has seen a m-o-m drop in its steel exports and imports as well as in iron ore imports in Jul’21.
There has been a m-o-m drop of 12.22% in steel exports in Jul’21 compared to the previous month, as per data from the General Administration of Customs, China. Steel exports fell to 5.68 million tonnes (mn t) in Jul’21 compared to 6.46 mn t in Jun’20.
Over Jan-Jul’21, exports rose 31% to 43.1 mn t against 32.9 mn t seen in the same period in CY20. On a y-o-y basis, exports in Jul’21 were up 36% compared to 4.18 mn t in Jul’20.
Why are China’s steel exports down m-o-m?
Over the last few months, a lot has been happening in China, which indicates that exports are not exactly its focus as of now.
In fact, China has been taking steps in a synchronised manner for quite some time to decrease exports to allow its production to stay within its shores for its own infrastructure and economic developments.
- One such move was the removal of the export rebates from 1 May’21 on 146 finished steel items, including hot rolled coils (HRC), one of the most heavily exported categories. It followed up on this move further in end-July with removal of the export rebate on 23 more items, mainly CRC, galvanised iron, silicon steel and a few other items, although these are not exported in such larger volumes as HRCs.
- Secondly, there have been rumours of an impending export tax from China, which has kept the markets guessing, pushing sellers (mills), buyers, and traders to the sidelines since Jun’21. The buzz grew louder in July.
- Thirdly, strict crude steel production cuts have been initiated as part of a blueprint for quality steel development and cleaner environment which is disincentivising exports.
The export rebate removals, and expectations of the export tax cut created uncertainty in the global market, including China’s own, especially over July. Due to these factors, the Chinese steel futures have been volatile since the last few months, further urging export market players to stay on the sidelines.
Steel imports
China’s steel imports dropped 16.21% m-o-m to 1.05 mn t in Jul’21 against 1.25 mn t seen in Jun’21. On a y-o-y basis, imports plunged 60% against 2.61 mn t in Jul’20.
Imports over Jan-Jul’21 were at 8.4 mn t, down 15.6% compared to 9.9 mn t seen in the same period in CY’20.
Why are China’s steel imports down?
The higher finished steel prices from importing countries were a dissuading factor. If production cutbacks in China are still encouraged by the government, the international steel market will become even tighter since China accounts for 60% of the global steel production volume.
This will encourage imported steel prices into China to remain high. As long as strong demand in China sustains, the current high level of international steel prices will continue for the time being.
Iron ore
Iron ore and pellets imports by China declined marginally by 1% m-o-m in Jul’21 to 88.51 mn t this year against 89.42 mn t June. Y-o-y, the imports dropped 21.43% against 112.65 mn t in Jul’20. During Jan-Jul’21, China imported 649 mn t of iron ore, lower by 1.5% compared to the CPLY.
Why are China’s iron ore imports down?
- The drop in imports was due to sustained crude steel production cuts, which dampened demand for iron ore.
- China’s top exporters from Australia and Brazil were impacted in the first half by weather-related issues and rising Covid concerns which impacted supplies.
Outlook
Keeping exports down is part of China’s long-term policy. Therefore, going forward, the rebates withdrawal will exert pressure on exports volumes.
If the expected 10% and above export tax on HRCs is imposed, then China’s overseas sales of the same will be negatively impacted for sure.
The rising Delta variant surge may slow down economic momentum and keep steel and iron ore and pellets imports down.
Prices as on 9:00 IST, 10 Aug. d-o-d changes indicated against closing price of 09 Aug.
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