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China’s trade data for Apr23’ was subdued as domestic demand uptick has been less than expected. Key highlights: 1) Copper imports in refined form fell for the fifth successive month; however, copper concentrate imports rose to the highestever level for April; 2) steel exports rose 59% YoY at 7.9mnte - highest since Apr21’; 3) thermal coal imports dropped MoM on high stocks’ and weak domestic demand; and 4) aluminium exports declined further as smelters’ operation was constrained by dry season and power shortages. Going ahead, we expect relatively better outlook for ferrous space as China Iron & Steel Association (CISA) has appealed for production restraints. Besides, domestic copper production rising to the record high is a positive. However, the resumption of aluminium capacity is likely to push global market to surplus in H2CY23. We will keep a close tab on steel and aluminium exports from China. We maintain our optimistic stance on the ferrous space with JSPL (TP: Rs750) and Shyam Metalics (TP: Rs570) as our key picks.

* Lower refined copper imports and elevated level of steel exports are a cause for concern: China’s trade data for Nov22’ underscores slower-than-expected demand recovery. Key points: 1) Refined copper imports declined 12% YoY to 407kte - marking the fifth successive month of decline. The decline in refined copper imports is also due to lesser use of copper as collateral to fund investments in property market; 2) copper concentrate imports, however, rose 12% YoY to 2.1mnte- the highest-ever level for the month of April, driven by the record-high domestic production of refined copper; 3) steel exports rose 59% YoY to 7.9mnte- the highest level since Apr21’ as demand did not pick up as expected in Q1CY23; 4) thermal coal imports declined slightly from a 15-month high level of 41mnte in Mar23’ owing to high inventory and demand concerns; and 5) aluminium exports fell 23% YoY to 462kte as smelters (particularly in Yunnan province) were not operating at its rated capacity. However, strong credit growth and positive credit impulse give hope for demand recovery in H2CY24. Besides, higher imports of copper concentrate and resultant record production of refined copper are positives.

* Aluminium exports might rise in H2CY23; steel export might taper off: Due to strong demand expectations led by possible relaxation in covid-19 measures, proclivity of steel mills to resume production got enhanced. As a result, Q1CY23 crude steel production rose 6.1% YoY to 261.6mnte. However, domestic demand recovery was not as strong as expected resulting in higher exports as players strove to reduce inventory. Total steel inventory is down 15% YoY in May23’ at 14.6mnte. Besides, in Apr23’ iron ore inventory at ports reduced more than imports, hence, we believe there could be production restraints in H2CY23, thus resulting in lower exports. In case of aluminium, however, we are concerned on high Mar23’ operating rates in key provinces- Shandong (100%), Xinjiang (99.35%) and Inner Mongolia (95.76%) - accounting for nearly half of China’s total capacity. As on Apr20’, 930kte of aluminium capacity was resumed in China while 212kte of new capacity was commissioned, completely offsetting 1.2mnte of aluminium capacity that was cut earlier. As per Shanghai Metals Market (SMM) estimates, another 2.63mnte of aluminium capacity is likely to be resumed and another 1.57mnte of new capacity would be commissioned in H2CY23. We expect this to result in higher Al exports, thus, putting pressure on LME Al prices.

* Outlook – stimulus awaited: China’s subdued trade data is an outcome of slowerthan-expected demand revival. Going ahead, we expect steel exports to moderate, however, Al exports might go up. As a result, we retain our relatively optimistic outlook on ferrous space with JSPL (TP: Rs750) and Shyam Metalics (TP: Rs570) as our key picks.

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