EU's provisional duties on Chinese EVs further pressure vehicle steel demand

The European Commission's decision to impose up to 38.1% of countervailing duties on imported Chinese electric vehicles may dent the momentum in China's vehicle production, especially when it has shown signs of weakening since May due to tapering purchases at home and abroad, some steel mill and trade sources said in the week to June 14.

While vehicle manufacturing accounts for 5.5%-6.5% of China's total domestic steel consumption, any decline in vehicle production will still have a critical influence on some of the flat steel products, such as hot-rolled coil and cold-rolled coil, market sources said.

According to the EU, a detailed regulation explaining the provisional findings that led to these duties will be published in the Official Journal by July 4 at the latest, with the duties set to enter into force the following day.

China's car market

Steel demand from vehicle manufacturing has declined since May, as both domestic and international passenger car purchases have weakened, some mill and trade sources in northern, eastern and southwestern China said. They added that the EU's higher import duties on Chinese EVs might add to the downward pressure on car sales, output and steel demand.

China's domestic passenger car retail sales fell 8% on the year and 23% on the month to 360,000 units in the first 10 days of June, data released by the China Passenger Car Association showed June 13.

Passenger car retail sales in May were already down 1.9% on the year at 1.71 million units, although they were still up 11.4% on the month, according to CPCA.

"EV sales in the domestic market may improve further as more people prefer EVs over petrol cars, but I don't think there is much room for overall car sales to increase further due to stalled household income," a market participant in northern China said.

Meanwhile, although China's vehicle exports remained strong in May, up 30% on the year at 569,000 units, according to China Customs, some steel market sources expressed skepticism about the sustainability of this strength.

"Vehicle export figures have remained good, but we have noticed piling unsold Chinese EVs at European ports, which means the European demand for Chinese cars may have peaked and the countervailing duties could further weaken the car export market," a mill source in eastern China said, adding that orders for car-making steel products received by their company have already declined since May.

"Local factories that make parts for exported cars have also seen orders fall since May," a market source in southwestern China said.

China's exports of pure EV and plug-in hybrid vehicles to Europe reached 227,000 units over January-April, accounting for 34.2% of the country's total EV exports, a report released by CPCA showed.

Flat steel market

Cold-rolled coil is used most extensively in passenger car manufacturing. Even though China's car production has so far remained strong, rapidly rising CRC output has led to higher CRC market inventories and lower prices.

Some market sources said that given the strong CRC output, CRC prices might come under greater pressure should China's car production stop increasing or even start to decline.

Some of the sources added that, as HRC is a substrate for CRC, a weaker CRC market would also add to the downward pressure on the HRC market.

The production of cold-rolled sheet, a proxy for the CRC market, increased 24.4% on the year to 15.03 million mt over January-April, data from the National Bureau of Statistics showed.

As of May 20, CRC inventories in spot markets monitored by the China Iron & Steel Association were up 14% on the year at 1.37 million mt.

As a result of the stronger production, Chinese domestic CRC prices in Shanghai fell to Yuan 4,150/mt ($572/mt) on June 11, down by Yuan 140/mt from early May and Yuan 620/mt since the start of 2024, S&P Global Commodity Insights data showed.