China's overcapacity problem returns
Although many expect that the Chinese authorities will impose an order to limit steel production at 2022 levels, this does not appear to be the case, as the Chinese authorities are prioritizing the goal of achieving 5% GDP growth, which requires maintaining strong performance in the manufacturing sector, including the steel industry.
Unjustified expectations
In the first half of 2023, Chinese steelmakers mainly increased steel output amid expectations of an economic recovery after the shutdown since December 2022 zero tolerance COVID-19 policy. In January-September, Chinese metallurgists produced 795 million tons of steel, an increase of 1.7%. from the same period in 2022. Everyone expected that there would be more activity, primarily in the construction sector. But this did not happen.
Stimulus measures from the Chinese authorities will support steel production and consumption in China next year. Thus, in mid-October, the Central Bank of China allocated the largest financial support to banks since 2020 in the amount of $39.6 billion. In addition, maintaining high export volumes and the priority of the Chinese authorities in favor of achieving the planned level of economic growth could have a positive impact on steel production in 2024 . The latter excludes measures of administrative restrictions on production in the Chinese metallurgy.
Export growth
This year, Chinese steelmakers are breaking all local records for steel exports. Based on the results of January-September 2023, Chinese metallurgical companies increased export supplies by 31.8% compared to the same period in 2022 - to 66.8 million tons.
The dynamics of steel exports showed very high growth in February- May - 40-55% year on year, but since June the figure has dropped to +/- 30% due to a slowdown in demand from foreign customers. In September 2023, steel exports amounted to 8.06 million tons of steel, which is 2.6% less than in August.
The significant increase in Chinese steel exports is due to insufficient domestic demand and low domestic prices for steel products, and the devaluation of the yuan against the dollar, which made Chinese steel products more competitive. Exports were also boosted by strong demand from some importing countries in the Middle East, Southeast Asia and North Africa, as well as China's efforts to promote Belt and Road projects.
Until the end of this year, there may be a slight slowdown in export dynamics due to the expected decline in steel production and lower demand from foreign buyers. According to SteelMint estimates, depending on the absence or presence of measures to reduce steel production, exports until 2023 could be about 79.5 million tons or 89 million tons, respectively.