Chinese Exports on the Rise Again

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.

 

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Chinese Exports on the Rise Again

Chinese CSP Shoots Up in March

The decline in Chinese domestic demand for steel has been well documented and there had been reports in the press of government plans to cut some of the older, more polluting capacity and to reduce annual production by around 150 million tonnes in five years.  There has been very little evidence of any progress being made in this regard, however, as although Chinese production fell by 3% year on year in the first quarter, the traditionally strong month of March actually saw production increase by 1% to 70.7 million tonnes which, incredibly, represents the second highest ever monthly production figure from the country.

This increase in production in a market that is struggling with sluggish demand had the now familiar effect on exports.  Shipments in March were a staggering 30% above those of March 2015. Although it should be noted that February and March last year suffered temporary declines due to the government’s decision to remove tax rebates from exports of steel containing boron.  Nevertheless the figure of 9.9 million tonnes is still substantial, has been bettered only four times in history and was enough to give a quarterly export figure 8% above that of Q1 last year.

So where is all of this extra Chinese steel going?  It is clear that it is not being shipped to the US as that country has moved quickly to protect its domestic industry against the threat of cheap Chinese steel products with swift anti-dumping tariffs being enacted.  This has led to a 71% collapse in Chinese exports to the USA in Q1 and we have also seen a 66% fall in shipments to Brazil as demand for steel in that country has suffered.  The largest increases in tonnage terms have been to Thailand, Vietnam and the Indian subcontinent with exports to India, Pakistan and Bangladesh all increasing considerably.

We have also seen an increase in exports to Turkey, which were up 56% year on year, and a growth in shipments to the EU, which increased by 22% with Italy suffering the brunt of the effects with tonnage that nearly doubled in the quarter.  In addition, there has been a three-fold increase in Chinese exports to Algeria, itself an important market for Italian steel producers.

This growth in Chinese production and exports has taken the industry by surprise somewhat, with many sources expecting a decline in Chinese output rather than a large tonnage of surplus Chinese production making its way onto the global market.  This, combined with the news that some 41 blast furnaces have been brought back on line in the country and the fact that there remains considerable overcapacity in the market is concerning and calls into question the sustainability of the recent global price increases seen in the industry.

Chinese CSP Shoots Up in March

Chinese Exports Hit Record Levels – November 2015

We have covered the growing importance of Chinese exports here several times before, commenting that Chinese producers have been able to get around the government’s ending of the tax rebate of the export of boron steels by replacing boron with other alloying elements, most notably chromium.

This growth shows no sign of abating and the latest September export figures for China show that they exported a record amount during the month with the total of 10.8 million tonnes being nearly 10% higher than the previous highest tonnage. With the year to date figure nearly 30% ahead of last year, 2015 will be a record year with the total very likely to be above 100 million tonnes which will be the first time in history any country country’s exports have crossed this milestone.

The destination of these increased exports is varied. Chinese steel producers have targeted the EU with a 42% increase in shipments to the region with exports to Italy, Spain and Belgium showing particularly high growth levels. Emerging markets have also been targeted with shipments to Africa up 62% and the Middle East increasing by 27% but it is the Indian subcontinent where exports have really taken off with shipments to India growing by 33%, Pakistan up by 86% and Bangladesh increasing nearly six-fold. South Korea remains the most important market by tonnage for Chinese steel but with shipments increasing by a modest 6% it is clear that other, newer markets are being targeted. In contrast to most other countries in the world, by introducing tough anti-dumping measures, the US has managed to limit the flood of Chinese steel into their market, with shipments falling by 28% so far this year.

As we have noted previously, in order to gain tax rebates from the Chinese government, the steel producers in the country routinely add alloying elements to their steel and so far this year an incredible 76% of all Chinese exports are categorised as “alloy” steel. There has been a large increase in many products with HRC and wire rod both increasing by more than one million tonnes but the real growth has been in “alloy HR bars” which have doubled to an astonishing 22 million tonnes in the first nine months of the year. The truth is actually somewhat different as this category has become a bit of a catch-all for Chinese exporters with everything from billets to rebar to genuine alloy bars being included under this heading.

With the WSA forecasting the demand for steel in China will decline by 3.5% this year and another 2% next year, it seems likely that Chinese producers will continue to target export markets and unless excess capacity is drastically reduced within the country, which is not a popular political decision, exports are likely to remain at least at these elevated levels for the foreseeable future.

Chinese Exports Hit Record Levels – November 2015