China’s Steel Exports in 2017 and its Outlook for 2018

World’s largest steel producer and exporter China has been dealing with its biggest problem of overcapacity in steel sector since long time. In Jan’16 the Chinese government revealed its restructuring plans to remove 100-150 MnT of crude steel capacity and 800 MnT of outdated coal capacity by 2020.

The Chinese government issued directive to cut down obsolete steel units (largely induction furnace) which manufactured low quality steel and were non-compliant with government’s pollution norms. By the end of 2016, the country was able to curb crude steel capacity of 65 MnT and declared its plan to cut another 50 MnT by the end of year 2017.
In Jun’17, CISA (China Iron & Steel Association) reported that country’s capacity cut downs have reached 42.39 MnT and the annual goal of closures (50 MnT) was achieved by the end of Aug’17.

However, these abrupt cuts coincided with a surge in China’s domestic demand for steel (increased by 2-3% Y-o-Y basis in 2017) which is activated by the government’s own economic stimulus packages. This led to increase in domestic steelprices subsequently, causing closed mills to reopen. Despite the production cuts, country’s crude steel production increased in 2017, hitting its monthly peak at 74.6 MnT in Aug’17, as several small units continued to operate without their numbers being reported.

China Steel Prices

Source: Customs, SteelMint

China’s steel exports Falls

In order to meet country’s increasing domestic demand especially from construction sector coupled with government directed production cuts, China restricted its exports to foreign countries. Also, in a bid to protect their domestic steelindustry countries like US, Europe, and India imposed various trade barriers on cheap Chinese imports that has largely impacted the steel export volumes of China in 2017. The Chinese steel exports have registered a significant fall of about 30.9% in Y-o-Y basis from 108.97 MnT in 2016 to about 75.32 MnT in 2017.

China Finish Steel Export

Dec’17 Estimated fig
Source: Customs, SteelMint

China’s Country wise Steel Exports

Out of the total finish steel exports from China in 2017, the highest number of exports is reported to South Korea at 11.36 MnT followed by Vietnam at 7.78 MnT and Philippines at 4.13 MnT. Exports to India from China stood at 2.58 MnT.

China Country Wise Export

Estimated fig
Source: Customs, SteelMint

China’s Product wise Steel Exports

Out of the total steel exports of 75.32 MnT in 2017, flat products export stands at 55.7 MnT against 47.3 MnT in 2016. While long products export from China declined significantly Y-o-Y basis from 61.7 MnT in 2016 to 19.62 MnT in 2107. As China majorly exported low-grade products for the construction sector, the reduction in capacity focused on low-grade facilities, implying curb in oversupply of long products meant for the construction sector.

China Product Wise Export

Estimated fig
Source: Customs, SteelMint

Tax Reforms and 2018 Export Outlook
Despite oversupplied global market, Chinese government have recently announced removal of export taxes on many steelproducts including wire rod, stainless steel plates and long products. In this tax reform announcement long products stand to benefit the most with tariffs being reduced to zero while stainless steel plate export tariffs will fall to 5% from 10%, and billet tariffs will be 10% (down from 15% currently).
As per our analysis, any increase in steel exports as a result of lower tariffs may be muted in the first quarter of 2018 as the winter heating season has enforced closures in the four provinces adjacent to the cities of Beijing and Tianjin (from Nov’17 to Mar’18). These production cuts coupled with structural curtailments in 2017 and trade barriers from various countries are likely to keep China’s steel exports to be muted in first half of 2018. However, with the increasing graphite electrode costs, it is anticipated that several countries using EAF (Electric Arc Furnace) will not be competent enough and thus, long steelexports from China may increase in 2018.