Morning Brief: H1 pulls up China steel exports in 2021, SE Asia largest importer

China’s steel exports in the first half (H1) of 2021 seems to have pulled up the entire calendar’s volumes.

South East Asia hogged the limelight in the country’s steel exports show in 2021, with a leading 19.40 million tonnes (mnt), up 12% y-o-y against 17.31 mnt in 2020. The share comprised 30% of China’s total exports in 2021. Vietnam led the charge with 5.61 mnt, up 26% y-o-y against 4.46 mnt in 2021.

South Korea, as an individual country, was the highest importer, at 7.06 mnt in 2021 against 5.57 mnt in 2020.

The geographies of Middle East and Africa came second at 14.22 mnt, rising 37% compared to 10.41 mnt in the previous year. Data also revealed that exports to Central and South America showed the steepest rise, at 85% y-o-y, while, Brazil, as an individual country, saw the highest y-o-y jump by 172%, followed by Turkey’s 165% spurt to 1.78 mnt (0.67 mnt).

Click here for country-wise break-up of Chinese steel exports

Total exports

Incidentally, China’s total steel exports in 2021 rose 24% to 66.61 mnt compared to 53.68 mnt seen in 2021, as per the country’s Customs data available with SteelMint. This may be surprising considering that the country undertook stringent production cuts in the previous calendar and efforts were made by the government to keep mills’ defocused from exports so that most of the steel remained within the country for domestic usage.

China’s total crude steel output in 2021 was at 1.03 billion tonnes (bnt), matching the government’s strict target of restricting the output to 2020 levels of 1.06 bnt.

Reasons for growth in exports

• H1 leads exports charge: Most of China’s steel exports took place in the first half of 2021 which pulled up the overall exports volumes for the entire calendar. Exports in H1CY’21 comprised around 37.56 mnt against a lesser 29.53 mnt seen in H2CY’21. This was because most mills in China were far more proactive in H1, apprehending a change in the export duty strategy. In fact, volumes in Mar-Apr’21 were the highest at 7.54 mnt and 7.97 mnt respectively.

Thereafter, China did bring about a change in the exports policy. There had been a strong buzz that the country would slap an export tax to disincentivise exports. However, China did not impose any tax but, from May’21, withdrew the export rebate of 13% on 126 steel products, including hot rolled coils, and from Aug’21, it further withdrew the 13% export rebate on 23 types of steel products, mainly CRCs, galvanised iron (GI) and silicon steel.

Thus, Chinese mills capitalized on exports heavily before the rebates were withdrawn.

• Higher H1 crude steel output: China’s crude steel production in H1 was higher by over 50 mnt at 560 mnt against 507 mnt in the same period of 2020. This further prompted mills to export heavily in H1.
• The Europe factor: The Europe factor came into play too. While China’s direct exports to the Continent rose 37% y-o-y to 3.02 mnt, this was minuscule compared to its export volumes to other geographies. As per market hearsay, and which could not be confirmed by SteelMint, a substantial volume of China’s exports were being re-routed to Europe after being value-added in some South East Asian and Middle Eastern countries. These mainly included hot rolled coils which were value-added in terms of cold rolled sheets and galvanized products. Europe’s demand also expanded in H2 as its countries emerged from various stages of Covid lockdowns after the devastating Delta wave of the pandemic last year. There was a renewed demand for flat steel for the automotive and home appliances sectors.
• South Korea’s shipbuilding demand: South Korea’s volumes rose a sharp 27% y-o-y to 7.06 mnt from 5.57 mnt in the previous year, mainly propelled by imports of shipbuilding related steel like heavy plates and hot rolled sheets. The shipbuilders have been receiving a large number of new ship orders since the end of 2020 and their order books were full but domestic suppliers like Posco and Hyundai Steel had raised thick steel plate prices last year.

Outlook

The first quarter (January-March) may see China’s steel exports remaining buoyant since there may be a rise in its crude steel production and domestic consumption may stay subdued in February due to the Lunar New Year celebrations and the Winter Olympics.

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 exports too to keep the cash registers jingling against a backdrop of de-carbonisation goals.