China Customs data shows cumulative steel exports in the first seven months of 21 CY to 43,051 million tons (mnt), up 30.9 percent year on year. During this period, cumulative steel imports decreased by 15.6 percent year on year to 8,397 mt.
In July'21, the average import price for steel was $1,348.9/t (t) up 103.48 percent, up 4.84 percent month on month. The average export price was 1,339.34/t, up 4.36% compared to the previous month and increasing 53.62 percent year on year. The gap between import and export prices narrowed to $10/ton for two consecutive months.
In July'21, China's steel exports decreased by 789,000 t to 5,669 mt, but increased by 1,476 mt and 99,000 mt respectively from July'20 and Jul'19.
Why are exports falling?
Revised export norms: On July 28,'21, the relevant governing body further canceled the export duty refund of cold rolled and galvanized steel containing 23 items, and increased the export duty of ferrochrome and high purity pig iron.
From the end of April 21, China revised its export tax refund and tariff policies twice. As a result, the full rebate on exported steel is removed, revealing the government's concern over steel exports and its determination to set a clear direction for an economy with a background focus on domestic demand, energy and environmental cleanliness.
Policy changes: Production and other policy changes in China and policies in other countries weighed heavily on steel exports. On the supply side, steel production cuts may be seen in the second half of CY'21 due to environmental concerns. Steel allocations for export are decreasing, pointing to a new supply-demand model.
In July'21, average daily crude steel production fell 10.53 percent month on month to 2.7997 mn tons, the lowest level from April'20. On the other hand, excluding China, daily crude steel production globally increased 19.33% and 5.28% in CY'20 and CY'19, respectively, compared to the same month.
It turned out that China's overseas markets are inclined to purchase steel from CIS countries when faced with equal export offers, due to policy changes regarding exports and imports and the resulting uncertainty. In July'21, the new export order index for the steel industry was at a 15-month low of 30.8%, down 11.5 points compared to the previous month. This indicator can predict weak exports later on, especially with production cuts and export policy adjustments.
Export price gap narrowing: Although some products are still competitive in export, the price gap between China and overseas markets is narrowing. In July'21, the upward momentum in steel prices slowed down in North America and the EU. Steel prices in North-East Asia, affected by the spread of Kovid, also appear weak. However, in China, the price stabilized compared to the previous decline. Although the price gap between Chinese and overseas offers narrowed, it widened for different categories and traders remained active for some export competitive products. In particular, China's rebar FoB prices are already above mainstream international levels, and the high price increase in hot rolled products, cold rolled and galvanized products following the cancellation of export returns is approaching CIS offers, although still low globally.
Exports to South America and Korea are increasing: Exports to Asian countries are at the highest level, but there are also significant increases in South America and Korea. China exported a total of 13,633 million tons to Asean, with an annual increase of 25.8% in the first seven months, accounting for 31.7% of the total exports. But this geography was affected by the rainy season and Covid. Therefore, while some allocations for domestic consumption were diverted to exports, demand from Asean, which is characterized by weak prices and declining imports, has dimmed.
In July'21, China exported 1,371 million t of steel to Asean, down almost 50% from the peak seen in April'21, while also reaching its lowest level in the same period for the past five years.
By comparison, China exported 4,734 million tons and 5 million tons, respectively, to South America and Korea in the first seven months, up 105.9% and 35.6% year-on-year.
China is going through a period of policy change. This includes a more specific focus on economic development driven by domestic demand. Policymakers are watching how these changes affect the country's exim trade. The export tax refund cancellation has already led to a 12% drop in exports in July'21 compared to June. Steelmakers, exporters and traders stepped aside, waiting for more clarity in their policies before making business decisions. Therefore, exports from China are expected to remain low in the second half.
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