With China’s overall exports almost flat m-o-m in Jul’21, indirect steel exports will also be impacted. Steel-intensive mechanical engineering products, including automobiles, consumer durables and machinery, have a lion’s share in China’s overall exports.
China’s total imports and exports in Jul’21 have shown a m-o-m decrease of 0.5% to $508.74 billion. Exports alone, in which steel-consuming mechanical and electrical products alone have a share of 59%, showed a m-o-m increase of a mere 0.4% at $282.66 billion. Imports, at $226.08 billion, showed a m-o-m drop of 1.6%. The figures have been unveiled by China’s General Administration of Customs.
The trend is unexpected because all this while total exports and imports had been trending up. Year-on-year, exports showed a 19.3% increase in Jul’20 and also a 27.5% growth over Jul’19. Imports too rose 28.1% in Jul’20 and 27.2% in Jul’19.
Segment-wise performance
- Mechanical and electrical products: This segment performed relatively well and is still the driving force behind the export growth. From Jan-Jul’21, the export value of mechanical and electrical products amounted to $1.06 trillion, accounting for 59% of the total exports, a y-o-y increase of 36.3%. But importantly, the value is down 3.9% over Jan-Jun’21.
- Automobiles: Within mechanical and electrical goods, automobile exports performed strongly, with the export volume increasing a whopping 119.8% y-o-y, although the growth rate was small compared with the previous period. However, as per the China Association of Automobile Manufacturers (CAAM), the country’s vehicle production and sales declined 15.5% and 11.9% respectively in Jul’21.
- Consumer durables: The growth rate of household appliances exports continued to fall, with a y-o-y increase of 23% from Jan-Jul’21.
Why are exports and imports down m-o-m?
The signs of overall weakening of overseas demand have emerged, as per a report from China. China’s global trade surplus has narrowed by 8.7% from a year earlier to $56.6 billion.
- The global economy had experienced a rebound after the first wave of the pandemic. However, the recovery slowed down in June. Both China IoT and JPMorgan Chase’s global manufacturing PMI have fallen for two consecutive months, indicating that global economies are shifting from a “rapid recovery” to a “stable recovery” phase. Consequently, aggregate demand is weakening, and the incremental demand is not supporting the sustained high growth of exports from China.
- In July, the new export order index for manufacturing was at 47.7%, which has fallen for four consecutive months and has been in contraction for three consecutive months, establishing a downward trend in exports, as per the report. However, the decline has been relatively moderate.
- Overseas domestic manufacturing has resumed, slowing demand for China’s goods, weakening China’s export growth momentum.
- The fiscal subsidy policies of other countries have been gradually withdrawn, and consumption has shifted from commodities to services. Consequently, overseas demand for home appliances from China is expected to weaken.
“As the base number gradually rises, the growth rate will continue to decline, and indirect steel exports will also be suppressed to a certain extent,” the report informed.
However, China’s new energy automobile export sales have expanded, and automobile exports may continue to grow at a high rate, the report said.
Outlook
Subdued exports in Jul’21 may indicate a slowdown in the industrial sector in the second half, due to severe lockdowns brought on by the highly transmissible Delta variant surge, seasonal floods and weather issues.
If exports of steel-intensive products start slowing, finished steel supply will increase within China’s domestic market. The imports dropped m-o-m in Jul’21 points to subdued domestic consumption. Both factors may pressure steel prices to head downwards.
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