China reduces output amid weakening exports

China's crude steel output forecast in 2023 remains unchanged, at a growth rate of 1.5% over the same period last year.

The financial services company said mills may reduce output due to higher raw material costs, already high inventories of flat steel products, plus expectations that exports will eventually decline due to the gap. The export price gap has narrowed significantly. This comes after domestic manufacturers suffered weak and often negative profit margins throughout the year.

“Domestic steel consumption did not perform as well during the week as macro headlines suggested, especially around the struggling real estate sector,” Macquarie said in a report. China's domestic demand is forecast to increase by 0.5% in 2023.

While long steel consumption was clearly weak, down 6%, it was well ahead of new developer starts data, at -25% year-on-year in July. Instead, Long steel demand better reflected total construction starts, down 10% year-on-year in the first half of the year. Other sectors, including shipbuilding, have also helped offset weakness in the construction industry, Macquarie said.

While China's total exports are trending down, exports of steel-intensive products are still growing strongly, supporting domestic steel consumption through indirect exports. This includes equipment – Macquarie forecasts steel consumption from this sector to increase by 12.6% this year. In the auto sector, all of the 7.4% year-on-year production growth through July can be attributed to a 74% increase in exports.

However, China's direct steel exports rose 28% year-on-year in the eight months through August, driving most of China's output growth.

In 2024, Macquarie forecasts China's crude steel output will grow 1% year-on-year, after which annual growth will slow. Domestic steel demand will increase 2.1% - including positive, albeit small, growth from construction, as high-frequency leading indicators are pointing to a likely increase in real estate sales. However, weaker export demand for both finished steel and manufactured products will partly offset this.

Sat Thep