- SE Asia on China’s exports radar
- Higher steel production but weak domestic demand support overseas sales
- EU not attractive market for China because of longer delivery period
- Indian mills to benefit, as EU market looks up
China has become active in the exports market again after a hiatus with an emphasis on finished flats and longs. Corroborating the trend, a trade source said, “Chinese export allocations have increased. For HRCs, China is quite active. I believe it sold 200,000-300,000 tonnes (t) in the last 10 days.”
It may be recalled, China, the largest steel exporter in the world, had not been active in overseas markets for some time with volumes actually dropping off steadily from Jun’21’s levels of 6.46 mnt to 4.36 mnt in Nov’21 and then edging up a little above 5 mnt in Dec’21.
Earlier in 2021, volumes had hit even as high as 7.5-8 mnt in March-April. However, keeping its stringent carbon goals of peaking by 2030 and net zero by 2060, China had moved in swiftly to restrain 2021 crude steel volumes to 2020 levels through draconian production cuts. As part of this strategy, it had removed the 13% export rebate across 146 products from May last year to discourage exports and keep its steel for domestic use with a new focus on value-added exports.
Factors supporting re-entry
- Domestic production high, demand weak: China’s domestic demand is still weak but its production is rising, compelling mills to divert a significant portion of the production towards exports. According to data from the China Iron and Steel Association, in late February, the average daily output of crude steel by key steel enterprises was 2,077,800 t. In the second half of February, the average daily steel output of key steel enterprises was 2.0907 mnt, an increase of 15.57% m-o-m and a y-o-y decrease of 12.62%. The 10-day crude steel production of key steel companies increased significantly in late February as per CISA.
On the other hand, demand has been weak post-Lunar holidays. Moreover, its construction sector, which contributes around 50% of steel demand, is still struggling. Property developers started January with weak sales. China failed to reactivate the real estate sector, post-the Evergrande collapse last year, despite injecting $100 billion for infrastructure development. “The market there is not absorbing that liquidity. This indicates the real estate market is still in a shock and investors are unwilling to re-invest…no green shoots visible yet,” a source told SteelMint.
- Market attractive: However, China is now focused on South East Asia, Turkey, Egypt, and Saudi Arabia. The reason is, “the market prices are attractive and the new financial year has just begun. So there is no threat of government action against exports yet,” said a reliable source. Buyers too are finding China’s offers convenient since those from other countries are comparatively higher.
Consequently, over the past one week, China has been able to make bookings specifically to South East Asia, post-which it further lifted its HRC export offers by $30-40/t. One lot was sold to Vietnam at $860/t CFR and then again at $890-900/t CFR Vietnam. Baosteel recently hiked its offers to Vietnam to $915-920/t CFR.
“China also sold to Turkey more than 90,000 t at $980/t CFR,” said another source.
Why is China not EU’s choice?
However, China has not yet sold any parcel to the European Union. In any case, it is traditionally not a huge seller to the Continent since the latter has quotas for every country from where it imports, and China is no exception. In 2021, China’s total volumes sold to the EU were a mere 3.02 mnt, up 37% y-o-y.
Of course, China can export to EU, if buyers there are willing to pay the 25% safeguard duty on the buyer’s account. However, it would be logistically cheaper and more viable for EU to buy from South East Asia or even India.
“Delivery time would be longer by 20-25 days if sourced from China compared to say Russia or Ukraine,” observed a source.
Also, with such uncertainty prevailing as the Russia-Ukraine war rages on, buyers are currently not willing to take long positions but scouting for prompt cargoes. “Buyers at this juncture would not mind paying higher where the delivery period is lesser. Thus, certain geographies are actively buying from China,” said a source.
Moreover, “China cannot re-route steel through South East Asia to Europe since the latter does not permit this,” the source added.
Outlook
Although China has consciously adopted a policy of exporting only value-added steel, market expectations are that mills would have a presence in commercial grades too to keep the cash registers jingling.
Indian mills may now become very active in selling to Europe. With South East Asia, Turkey, Egypt and Saudi Arabia etc actively buying from China, Indian mills, which had been supplying to these countries, will now divert volumes towards the EU.
Indian mills have no firm offers to Vietnam or Turkey, but only to the EU at $1,060/t CFR with newer offers hovering at $1,080-1,100/t CFR.
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