A topical and concerning issue relates to the slowdown in Chinese demand for steel and we have seen evidence in 2014 that this had led to a huge increase of Chinese steel exports. When compared to the previous year, exports in 2014 were some 51% higher at nearly 93 million tonnes and the December figure of 10.2 million tonnes was the highest monthly total ever recorded.
South Korea remained the most important export market for Chinese steel and recorded the highest increase in tonnage terms with exports to the country increasing by 3.3 million tonnes but on percentage terms the increase was relatively modest, up just 33%. Other major Asian destinations for Chinese steel were Vietnam, up 71%; Philippines, up 96% and India, up an incredible 131% to 3.8 million tonnes. Outside Asia the largest market was the US with exports up 57% to 3.3 million tonnes with other important markets in the Middle East, Saudi Arabia and UAE up 91% and 75% respectively. Additionally we have seen increased exports to the EU with the quantity increasing by 73% as tonnage sent to the UK and Italy more than doubled when compared to the 2013 total.
As far as products are concerned, exports increased across both long and flat with exports of HR bars more than doubling to an incredible 18.4MT and HR wide strip also doubling to 13MT. Over the past few years the Chinese authorities have granted a tax rebate on exports of higher quality alloy steel in an effort to encourage producers to move up the value chain.
This has encouraged some Chinese steel makers to look for novel methods to qualify for this rebate. Steel is considered to be alloy if it contains just 0.0008% of boron and these producers have been adding this metal to their steel in order to qualify for the duty rebate that is worth more than five times the costs of the boron that is added. Consequently the largest constituent of exports are alloy bars and alloy flat products exported under tariff codes 722830 and 722530 respectively. Earlier this year it was announced that the Chinese authorities are abolishing this rebate for boron steel so it will be interesting to see how Chinese producers adapt to this change, possibly by finding the next most cost effective alloying metal to add to their steel that will not be detrimental to the properties of the steel itself.
After a record year for Chinese exports and one where the monthly totals have been increasing to the point where December was the highest monthly total ever, will this strength continue into 2015? Despite some large infrastructure projects it seems unlikely that Chinese demand will recover from last year’s 4% decline in the short term and the removal of duty rebates for boron steel is unlikely to curtail exports as producers switch to other alloying metals. Therefore, unless some of the older, more inefficient capacity is taken out of the system in China, which could well happen as the government starts to take environmental concerns more seriously, it would seem that these high levels of exports could be here for quite some time with preliminary figures for January suggesting a further modest increase which would make that month a new record high.