In a year which has seen faltering growth from many emerging economies and continued weakness in Europe, it has been the US that has driven world economic growth. In 2014, US GDP increased by 2.4% as the country continued its recovery. This growth has resulted in an increase in demand for steel and whilst steel production in the country increased by a steady 2%, much of this demand growth has been supplied by increased imports which were a whole 37% higher than in 2013 as the strengthening dollar and growing economy, combined with some softening in demand from other countries has made the US a very attractive destination for overseas producers.
In 2014 we saw growth from all major sources of imports but the largest increases have been seen from countries further afield so whilst imports from Canada and Mexico were only up 10% and 14% respectively, imports from the EU increased by 45%, mainly driven by supply from the UK, imports from South Korea were up 43%, imports from Turkey increased by 83% and imports from India grew by 46%. Previously we have described how a slowdown in Chinese demand has led to an increase in exports from China and predictably the attractive US market has also seen imports rise from China, increasing by 62% year on year. The Chinese producers have been targeting very specific products, however, with imports of Chinese cold rolled coil increasing by three times and imports of hot dipped galvanised steel increasing by nearly four-fold.
The sheer quantity of increases from these countries is remarkable but one source country stands out in particular US imports from Russia increased by an incredible 150% to record a figure of 4.2MT which makes Russia the fourth largest supplier to the US behind just Canada, South Korea and Brazil. As far as products are concerned, the largest increase in tonnage from Russia has been steel slabs, which doubled during the year but potentially more interesting is the fact that hot rolled coil imports from Russia increased by an astonishing 25 times to register a tonnage of 850KT. Given the strained relationship between Russia and the US this situation is perhaps surprising but the deterioration in the Russian economy and the collapse in the Russian Ruble must make US markets very attractive to Russian producers.
So far this year, US Imports in January were 37% above those of the same month last year which indicates that this dynamic shows no sign of abating in the short term but it would not be surprising to see the country start to erect trade barriers on certain products in order to help protect domestic suppliers.
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.