Ironically, China has briefly become the home for unwanted global overproduction

Demand drivers

Several factors have driven demand.
On the one hand, global steel demand was depressed in the spring, impacted by lockdowns and restrictions as a result of the COVID-19 pandemic. Steel producers looked to dump excess capacity.
As a result, China was able to access low-cost metal from overseas markets keen to find a home for unwanted metal. Ironically, China has briefly become the home for unwanted global overproduction.
On the other hand, finished steel demand, particularly hot-rolled coil (HRC), is robust. Traders turned to temporarily low-priced overseas suppliers to fill the gap and China bounced back from its own lockdowns in May.
Those orders will likely carry on into August but then peter out from September onward. The two largest supply markets for semi-finished steel have been India (660,851 tons in July, accounting for 27% of China’s total purchases), while shipments from Russia were at 479,044 tons (equating to 20% of the total).
Much of the increased metal supply has been in the form of billets and slabs as high-cost iron ore. High-cost iron ore, now back to price levels last seen in 2014, constrains integrated mills’ ability to compete.

Net exporter to net importer

According to Platts, semis such as slab and billet when added to finished steel imports took China’s total steel imports in July to 5.06 million metric tons. That total greatly surpassed July’s steel exports of 4.18 million metric tons, making China a net importer.
The switch, however, is likely to be temporary.
Since July, China’s steel import orders have slowed, while export orders have improved.
Construction is said to have been hampered by heavy rains and even flooding in some regions and typhoons in others.
China’s steel inventory levels have remained relatively steady. Prices have reflected relative sector demand, with construction steel rebar rising only modestly by about RMB 60/ton over the last two months but HRC rising by a much stronger RMB 310/ton, according to MetalMiner data over the last two months.
Regional steel markets have reacted to the change in China’s supply-demand pattern with modest increases in supply of finished products. However, they are also cautious about strong ramp-ups in the expectation their largest neighbor’s increased appetite for metal is going to be short-lived.
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