SINOWELL METAL – China’s Steel Exports May Pick up Next Year



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16 March 18
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China’s steel exports dropped sharply in 2017. According to the statistics of the General Administration of Customs, China exports 59.6 million tons of steel products from January to September 2017, down 29.8% over the same period of last year. Among them, steel exports 5.14 million tons in September, down 41.6% from a year earlier. Preliminary analysis, the decline in China’s steel exports this year, there are three main reasons: First, China domestic steel prices increases, as well as the previous period of RMB appreciation, make the export costs more expensive. This results in a sharp drop in export profits, or even unprofitable, a corresponding decline in the enthusiasm of steel exporting companies. Second, global trade protectionism is on the rise. There are discriminatory measures for the export of Chinese steel products. Third, exports in the previous year witnessed a rapid growth and a rise in the comparison base.

Even so, China’s steel exports in 2017 are still large in number and scale. Expected annual steel exports will reach 79 million tons, nearly 84 million tons of crude steel conversion. If we add more indirect exports in the same period (indirect exports of steel products driven by machinery and equipment, automobiles, construction machinery and ship exports), in 2017, China’s crude steel exports will be around 200 million tons. This shows that export demand remains an important part of the total demand of China’s steel products.

Looking forward to the situation of China’s steel exports in 2018, if there is no major accident, it is estimated that steel exports (direct exports, the same below) are likely to rebound during the year. It is estimated that the annual export volume of steel may reach 80 million tons, an increase of about 3% over the previous year. The reason why the export volume of steel products in the new year is likely to pick up is mainly due to three major reasons:

The first is the continued recovery of the world economy. In the latest released World Economic Outlook, the International Monetary Fund believes that the major regional economies in the world are in a sweet phase of synchronous growth and that 75% of the countries or regions are accelerating their GDP upward. Therefore, the global economic growth forecast for the next two years will also be raised by 0.1 percentage point to 3.6% and 3.7% respectively. It is because the continued recovery of the world economy has stimulated China’s foreign trade exports. According to customs statistics, from January to September 2017, the total exports of goods to the country amounted to 11.16 trillion yuan (RMB), an increase of 12.4% over the same period of last year. Among them, export growth to the United States and Europe has returned to double digits. The world economy continues to recover and the demand for steel products keeps increasing. Of course, it is good news for China’s steel exports.

Second, the United States tax cuts and capital flows will stimulate the U.S. manufacturing industry. As well as Trump’s launch of a large-scale infrastructure project are conducive to increasing demand for steel to create a better environment for Chinese steel exports. According to the tax reform plan of U.S. President Trump, corporate tax will be reduced directly from 35% to 15% in the future and the personal tax threshold will have nearly double increased. Tax cuts will reach over one trillion U.S. dollars. Despite fierce opposition from the mighty forces, the U.S. government will surely greatly enhance its manufacturing competitiveness if it succeeds in cutting taxes as planned. In the meantime, the Fed’s contraction of the schedule, the rate hike and the expectation of further interest rate hikes will also stimulate global capital flow back to the United States and reinforce the U.S. manufacturing, thereby increasing the demand for U.S. steel imports. Of course, this is just an uncertainty.

Finally, the domestic and international spread gradually restored. Recently, the price of China domestic steel products has come down. At the same time, the price of steel on the international market has risen. The gap between domestic and foreign steel prices has begun to shift in favor of exports. It is estimated that the domestic steel price increase will obviously slow down in 2018, while the steel price in the international market will appear “compensatory growth” under the support of the demand growth. The devaluation of the renminbi will also increase the competitiveness of China’s steel exports. Further widening the domestic and international price gap, the steel export trade is more profitable, and the steel exports will also stimulate the recovery.

While the direct export of steel may pick up, the indirect export of Chinese steel will continue to be huge in scale. Statistics show that in the first three quarters of 2017, the national export of electro-mechanical products reached 6.41 trillion yuan, an increase of 13% over the same period of last year, of which automobiles and ships increased by 28.5% and 12.2% respectively. From the export volume point of view, cumulative January-September this year, the country’s metal container exports of 2.18 million standard containers, an increase of 51.6%. Automobile companies exported 623,000 cars, up 26.3%. In construction machinery, excavator export 6607 units, an increase of 22.5%. Loader exports 13,988 units, an increase of 34.44%. Others such as bulldozers, graders, and other exports rose 20% over the same period last year. It is estimated that in 2018, the above export of electro-mechanical products in China will maintain a relatively high level. As a result, the indirect export of crude steel will be over 100 million tons.

Steel exports rebound, it is bound to increase the real demand for Chinese steel, improve the supply and demand chain relationship. Although the growth of apparent consumption of crude steel in China is up by two digits, this is not yet a real demand, in 2017. As we all know, China’s real steel demand consists of two parts: one is domestic demand, and the other is export demand (direct export demand, the same below). As demand for steel exports huge decreases in 2017, there was a big constraint on the growth of aggregate demand for steel. If the rebound of China’s steel exports in 2018, even if only to restore the level of export in 2016, will be a new impetus for growth in the overall demand for the new year. China’s steel exports rebound is bound to produce a new impetus to the growth of iron and steel enterprises.

It is estimated that the national crude steel output will reach 877 million tons by 2018, an increase of about 3%. Although the growth rate will drop, the incremental development trend will not change.

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