Despite the slow-down in Chinese demand for steel, crude steel production in the country actually increased by 1.3% year on year in quarter two to 209.4 million tonnes. This had a predictable effect on exports as a very strong June figure of 10.4 million tonnes means that shipments from China in Q2 increased by over 10% to 29.9 million tonnes, the second highest quarterly export figure in history.
This is a situation that is not new of course, and in recent years we have seen Chinese producers looking increasingly further afield in their search for export markets. It is therefore rather surprising to see this trend reverse strongly over the last quarter with shipments to other Asian counties, including the Middle East, increase by 25% whereas exports to non-Asian counties actually declined by 20%.
Aside from a large growth in shipments of HR Bars to Saudi Arabia and UAE, all of the other significant increases have been to other South East Asian countries with exports to Thailand up 83%, exports to Vietnam increasing by 39%, shipments to Taiwan up 37% and shipments to Indonesia more than doubling year on year. In contrast, exports to India were down 28%, shipments to the EU fell by 30%, exports to the US collapsed by 61% and shipments to Brazil declined by 66%.
The reasons for this change are somewhat varied. Exports to Brazil are likely to be down due to the dire state of the economy, ironically partly caused by a reduction in Chinese demand for steel and the knock-on effect for economies that are dependent on mining commodities. It is also true that shipping rates have ticked up somewhat since the low in Q1, although this is unlikely to have been enough to deter many producers shipping outside South East Asia. It is also true that Asian economies are expected to grow more strongly than those in other parts of the world with the ASEAN five consisting of Indonesia, Malaysia, Philippines, Thailand and Vietnam predicted by the IMF to grow GDP by 4.8% this year.
It seems as though the bulk of the change could actually be as a result of a growing concern globally of the threat of Chinese steel on global markets and the increase of protectionist measures introduced to combat the issue of Chinese dumping. We have mentioned previously the robust anti-dumping measures implemented by the US which have had a direct effect on Chinese exports to the US market. India has also made a concerted effort to try and shelter its domestic market from cheap imports. In February, the government imposed a floor price on the import of 173 steel products and in March extended import taxes on some products until 2018. Last month, they imposed a provisional anti-dumping duty on seamless tubes and pipes imported from China.
In comparison the EU response has been more muted but could the ongoing objection by Eurofer to China being granted market economy status, as is being considered by the EU, have encouraged Chinese producers to be less aggressive in their targeting of EU markets? This has coincided with the announcement that China will step up its efforts to cut some 45 million tonnes of capacity this year after only hitting a third of its target in the first half. Whether this increased effort to cut capacity along with a reduction in the “dumping” of steel in European markets is a genuine effort to address global industry concerns or more of a temporary measure to smooth the country’s progress to be seen as a “market economy” remains to be seen.
It will be interesting to see if this trend continues for the rest of the year and whether the granting of market economy status to China, if it comes to pass, will have an effect. In the long-term the continued increase in protectionist legislation around the world is unlikely to be positive for the global industry but in an environment where a country responsible for producing around half of the world’s steel is ramping up production for export in a market that is already heavily over-supplied this response is understandable and unlikely to reverse until Chinese over capacity is tackled decisively.