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China steel exports rise ahead of rebate cuts

China exports should now decline, enabling higher India exports

China steel exports remained high for the second consecutive month in Apr’21 – as exporters looked to avail the benefit of export rebates before the Chinese government discontinues this from May. Thus, steel exports rose 26% YoY (6% MoM) to 7.97mt, the highest since Dec’16. As export rebates are no longer available, we expect China exports to decline from May.

This decline expectation should help Indian steel mills get more export orders and tide over the current weakness in domestic steel demand (down ~25% from March). Moreover, export realizations are currently strong, and export HRC is at a ~15% premium to India domestic HRC prices. Regional HRC steel prices have continued to rise due to tightness in regional demandsupply and are up 11%/19% MoM to USD1,060/USD1,055 per ton for Korea export FOB / China export FOB.

China Apr’21 steel exports rise 6% MoM to 8.0mt

* China monthly steel exports rose 26% YoY (6% MoM) to 7.98mt in Apr’21, the highest since Dec’16. We believe a) uncertainty over export rebate cuts (now removed w. e. f. 1st May’21) and b) higher prices in the export market v/s domestic market in China led traders to export more in Apr’21. Over Jan–Apr’21, China steel exports were up 26% YoY to 25.6mt (Exhibit 1).

* China steel imports also rose 16% YoY, but declined 11% MoM to 1.18mt. Over Jan– Apr’21, China steel imports were up 17% YoY to 4.9mt.

* As a result, China net steel exports rose 28% YoY (9% MoM) to 6.8mt, the highest since Dec’16. Over Jan–Apr’21, China net steel exports increased 27% YoY to 20.8mt.

* China iron ore imports grew 3% YoY (-3% MoM) to 98.6mt in Apr’21, while inventory at ports was flat MoM at 119.7mt. During Jan’21-Apr’21 China iron ore imports grew 6.8% YoY to 382.2mt (Exhibit 2).

China steel prices at all-time high; inventory remains high

* China domestic steel prices rose 15–22% WoW post the five-day-long Labor Day holidays to all time-highs. On a MoM basis, HRC/rebar prices are up 20–25% to USD1,022/USD981 per ton (Exhibit 4). Rising steel prices in China indicate strength in underlying demand. With higher prices, steel spreads in China have also improved 22–35% MoM to USD353/USD317 per tonne for HRC/rebar (Exhibit 5).

* Steel inventory (with traders in major cities) declined 16% MoM to 5.3mt (up 6% YoY; Exhibit 6).

* China steel export prices have also increased 15% WoW to USD1,055/t on strong steel demand in the export market and the removal of export rebates (Exhibit 14).

India steel consumption declines in Apr’21; inventory remains low

* On account of weak demand due to pandemic-led lockdowns, India steel consumption declined 26% MoM (to 6.7mt) in Apr’21 (Exhibit 11). However, low inventory levels remain a silver lining. We expect domestic demand to weaken further in May, partly compensated by higher exports.

* Due to weak demand, as per provisional data, India’s crude steel production also declined 21% MoM (to 8.0mt) in Apr’21 (Exhibit 10).

* India steel imports declined 27% MoM (down 11% YoY) to 364kt; exports declined 26% MoM (up 122% YoY) to 951kt. As a result, net steel exports stood at 587kt (Exhibit 12).

* Domestic steel inventory was down 3% MoM (down 39% YoY) to 8.3mt and came in the lowest in the past year (Exhibit 13).

* Korea export FOB prices have edged up 7% WoW to USD1,060/t (CFR India – USD1,095/t). Domestic HRC trades at INR66,750/t at traders markets – at a discount of INR15,300/t to the landed cost of imports from Korea (Exhibits 14, 15)

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