Robust steel exports from China have emerged as a major driver supporting steel production at a time when demand activity from the country’s largest steel consumer — the property sector — has remained muted for the most part of this year.
Besides exports, a decent demand push from China’s infrastructure and manufacturing sectors has also contributed to keeping steel production at elevated levels in the country, market sources said.
Strong exports support production
During January-August, China’s net exports of semi-finished and finished steel totaled 651.88 million mt, up 19.84 million mt from the same period of 2022, China’s customs data showed on Sept. 21.
Over the same period, China’s crude steel production reached 712.93 million mt, up 18.07 million mt from a year earlier, the latest data from the National Bureau of Statistics showed.
“The growth of steel exports even exceeded the growth of production, suggesting the incremental steel production so far this year has been consumed by overseas markets,” one export trading source said.
Some market sources said overall global steel demand had been sluggish, but competitive Chinese steel prices, coupled with efforts to boost the “Belt and Road” projects, led to robust exports from China so far in 2023.
However, China’s steel exports might retreat in September-October from August level but remain relatively high compared with the same period of last year, according to trading sources.
The Chinese government is likely to go easy on steel output cuts for 2023, given concerns over economic growth, and thus declines in China’s crude steel production in the coming months may be milder than a year ago, capping the upside for Chinese steel prices, and continue to benefit China’s steel exports, they added.
Resilient domestic demand
According to calculations by S&P Global Commodity Insights, the Chinese domestic steel apparent consumption reached 651.88 million mt over January-August, almost unchanged from a year earlier.
The apparent consumption equals crude steel output minus net exports and increased steel inventory, and thus reflects the amount of steel consumed domestically.
“Although the property new home starts (the biggest steel demand driver) still fell sharply in 2023, infrastructure and manufacturing – especially cars, ships, and new energy facilities, have managed to offset much of the drag from the property sector,” eastern China’s mill source said.
However, while the Chinese domestic steel demand is unlikely to have any significant drops given the government’s efforts to boost infrastructure and consumption, it is hard to see much demand growth in the home market either before the property sector bottoms out and consumer confidence returns, trading and mill sources said.
“High steel production has squeezed the Chinese steel profit margins hard this year. But I have to say oversupply has not been serious and steel inventories are currently not high, thanks to strong exports and stable domestic demand,” another mill source said. He added.
The fragile balance between supply and demand might continue as long as China’s steel exports stay strong.
The Chinese domestic HRC sales profit margins averaged at minus $4/mt so far in 2023, down from an average of $14/mt in the same period of 2022, S&P Global data showed.
Semi-finished steel trade
According to China Customs data, the semi-finished steel exports reached 259,000 mt in August, up by 0.5% on the month and more than five times higher on the year. In the first eight months, the semi-finished steel exports were 147% higher than in the same period last year at 2.192 million mt.
The total steel exports, semi-finished and finished steel combined, increased by 12.9% on the month and 37.9% higher on the year at 8.541 million mt in August.
Over January-August, China’s exports of semi-finished and finished steel increased by 30.6% on the year to 60.977 million mt.
Meanwhile, the semi-finished steel imports in August increased by 72.5% on the month but still 36.7% lower on the year at 311,000 mt, data from China Customs showed.
The total imports of semi-finished and finished steel in the first eight months fell by 45.1% on the year at 6.748 million mt.
As a result, China’s net exports of semi-finished and finished steel in January-August increased by 58%, or 19.839 million mt, on the year to 54.229 million mt.
Source: Hellenic Shipping News