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Analysis: Fall in China's Aug steel exports points to continuing strength in domestic demand

Singapore — China's steel exports fell to the second-lowest monthly level in 2019 in August despite high domestic steel production, indicating domestic steel demand remains robust enough to absorb the increase in supply, traders said Tuesday.

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The country exported 5 million mt of steel in August, down 10% from 5.57 million mt in July, and the lowest since 4.5 million mt was exported in February, latest China Customs data showed.

Over January-August, China's steel exports totaled 44.97 million mt, down 4.4% on year, the data showed.

While China's crude steel production data for August has yet to be released, output over January-July was up 9% year on year at 577.06 million mt.

Coupled with the decline in steel exports, this points to an increase in domestic consumption, traders said.

The ratio of finished steel exports to crude steel production narrowed to around 7% over January-July from 8% over the same period of 2018, according to S&P Global Platts calculations. The ratio was as wide as 14% when China was exporting more than 100 million mt/year of finished steel over 2014-2016.

China exported just under 70 million mt of steel in 2018 and the total for 2019 appears on track to be similar.

Net steel exports (exports minus imports) were calculated at 4.03 million mt in August, down 14.7% on month and down 16.2% on year. Total net steel exports over January-August were down 2.5% at 37.33 million mt.

China's export volumes were expected to increase slightly over the remainder of 2019 as the continuing increase in steel supply could start to edge ahead of the increase in demand, traders said.

They projected China's overall domestic steel demand to be largely stable in the second half of the year from H1 as requirements for infrastructure projects were expected to accelerate and offset slower demand from the property construction sector.

However, China's rising steel capacity and a relaxation of environmental controls on steelmaking could see strong steel supply dampen any upward price pressure, the traders said.

However, other export traders said a rise in Chinese steel prices since August due to a seasonal demand recovery could dent export orders in coming months, although a strong steel price rise may not be sustainable once mills ramp up output to take advantage of higher prices.

-- Analyst Zhang Jing, jing.zhang@spglobal.com

-- Edited by Wendy Wells, wendy.wells@spglobal.com