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China’s steel exports set to rise as domestic property demand falters

China’s finished steel exports are expected to increase to 65 million-75 million mt in 2021 from an estimated 54 million-55 million mt in 2020, S&P Global Platts calculations showed Dec. 10, due both to recovering demand for China’s exports and a likely slowdown in domestic home starts in the coming year reducing demand for long steel.

Platts estimates China’s crude steel production will hit 1,068 million mt in 2021, increasing from an estimated 1,045 million mt in 2020. As a result, the ratio of China’s exports to production of crude steel is expected to widen to 6.4%-7.4% in 2021 from 5.5% in 2020.

The country’s exports of long steel are expected to catch up with, or even outpace, those of flat steel in 2021 for the first time since 2017.

The country’s flat steel exports totaled 26.9 million mt over January-October, almost three times higher than long steel exports of 9.81 million mt, according to China Customs data, and comprised bar, wire rod, angle and section products.

Some market sources said export orders for both Chinese flat and long steel products had been improving since late September as global demand gradually recovers, but operations at overseas mills had yet to fully return to pre-pandemic levels.

Some sources expected the disparity in overseas steel demand and supply to continue into the first half of 2021, supporting China’s steel exports for months to come.

HOUSING STEEL DEMAND SLOWS

China’s property sector, which accounts for over 35% of total domestic steel consumption, is likely to slow next year as the central government tightens financing for developers. This will put pressure on steel prices, especially as China’s steel production capacity will continue rising in 2021.

Platts estimates China’s crude steel capacity will increase by 27 million mt/year to 1,284 million mt/year by end 2021 from 1,257 million mt/year at end 2020. The new capacity will be divided roughly evenly between long and flat steel production.

Some sources said China’s property sector would already be on a downtrend if not for the monetary stimulus in H1 that offset the impact of COVID-19.

China has been paring back those stimulus measures since July, which was expected to have an adverse impact on property sales and new home starts in 2021. Platts expects new home starts to be flat in the year from 2020.

While the country will continue to push ahead with its infrastructure program in a bid to support the economy, spending will be constrained by a fall in government revenue. Infrastructure investment is likely to grow modestly jn the mid-single digit range in 2021, only partially offsetting the slowdown in the property sector.

China’s infrastructure investment edged up 0.7% year on year over January-October, while government revenue fell 3% over the same period due to the pandemic and tax cuts, and government spending rose 6%. Property and infrastructure combined account for more than 55% of China’s total steel consumption.

“The long steel market may see an oversupply at some stage in 2021, which will hardly squeeze mills’ profit margins,” one source said, adding it would instead result in more opportunity to export long steel products than in 2020.

MANUFACTURING TO FARE BETTER

Most market sources expect China’s manufacturing sector to continue strengthening, at least in H1 2021, as both domestic and overseas demand for Chinese goods continues to recover.

The domestic flat steel market has been gaining strength since October, and is likely to continue doing so in H1, thus limiting the opportunity for exports. Domestic hot-rolled coil prices have risen Yuan 550/mt ($84/mt) or 14% since the start of October to stand at Yuan 4,380/mt Dec. 9.

Overseas manufacturing was expected to return to normal toward mid-2021 as vaccines are distributed. Meanwhile, China will likely continue to tighten credit conditions. As a result, overseas and domestic demand for Chinese manufactured goods is likely to slow in H2 2021, potentially weighing on domestic flat steel prices and increasing steel exports.

Some market sources said domestic sales of passenger vehicles, a major steel-consuming manufactured product, will see double-digit growth in both sales and output in 2021, although this was mainly due to coming off a low base in 2020.

In fact, some sources claimed demand for auto sheet might have already peaked in Q4 due to pent-up demand from the first half of the year, boosted by sales promotions by automakers and local governments.

Chinese household incomes may also not rebound in the short term, which may limit demand for cars in the second half of next year, curbing demand for auto sheet.
Source: Platts

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