China’s steel trade is returning to form as import-export balance recalibrates

We wrote last month how China’s rapid recovery from the COVID-19 pandemic resulted in the country importing semi-finished products for which it previously had been self-reliant or even a net exporter for the last decade.
Some steel products and primary aluminum swung into becoming significant net inflows for the economy during the summer months.
But as we cautioned at the time, this was only expected to be a temporary phenomenon.
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China’s steel flows recalibrate

Sure enough, although volumes are still down on this time last year, exports have picked up and imports have fallen.
In a recent post, Argus Media reported China’s steel exports in October rose by 5.2% from September to 4.04 million tons. Chinese mills shifted supplies to overseas markets, enabled — or forced, depending on your point of view — by falling domestic prices.

Summertime exports rose as domestic prices fell

Falling domestic prices in the summer aided Chinese steel mills’ ability to export so aggressively.
Domestic inventory levels rose and domestic crude steel production hit record levels of 3.09 million tons a day in September, in large part to meet domestic demand. Weakness in domestic steel prices suggests overoptimism by the steel mills, inevitably resulting in excess production leaking into export markets looking for a home.
Domestic Chinese steel prices have recovered since the summer as global steel prices have risen and imports have fallen.
As the global recovery has lifted demand and prices, mills in India and elsewhere have not felt the need to distress sell metal into China. In addition, the arbitrage window has narrowed.
Imports have therefore appeared less attractive to Chinese buyers and exports more attractive to mills. That is a trend we expect to continue through Q4.

Rising exports, falling imports

Looking forward to November, Mysteel agrees the trend will continue with China’s steel exports to grow to 4.8 million tons while imports decline further to between 1.2 million and 1.5 million tons, due to the further narrowing price gaps in and out of China in September.
China’s growth will outstrip the rest of the world, according to the IMF. The IMF predicts expansion of 4.9% in the third quarter of this year, leading to a yearly growth of 1.9% this year and 8% for next year.
If the IMF is right, steel will continue to play a significant part of that recovery. Furthermore, steel production will continue to be robust.
Rising protectionism around the world will, to some extent, constrain exports. In addition, China’s ongoing demand for raw materials and Chinese consumers’ demand for foreign finished products will buoy global prices.
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