Electrical steel now China’s star product amid global decarbonization drive

The global decarbonization drive is turning electrical steel into one of China's key ferrous products, with electrical steel exports surging in recent years, sources told Fastmarkets

Exports of electrical steel have increased quickly in recent years, and will likely maintain this momentum in 2024 due to the good demand due to an expanding electric vehicle (EV) industry, sources said.

The exports of electrical steel started a sharp increase in 2021, with a total 860,959 tonnes shipped out of China, up by 335,056 tonnes, or 64%, from 525,903 tonnes in 2021, according to data from the country’s General Administration of Customs.

The exports increased by 49% year on year to 1.28 million tonnes in 2022, but dropped slightly by 4% to 1.23 million tonnes in 2023.

The top five buyers of China’s electrical steel took a total share of 54% of the country’s total exports of the products.

The biggest buyer of China’s electrical steel was India in 2023, taking 189,184 tonnes, or 15%, of China’s total exports of the products.

The exports totaled 356,726 tonnes in the first three months of 2024, with a year-on-year increase of 30% from 274,972 tonnes.

The top five buyers of Chinese electrical steel remained India, Turkey, Mexico, Italy and the United States, with a total share of 57%. India remained the biggest buyer by volume, with 58,896 tonnes and took 17% of the total exports in the first three months of 2024.

“The major reason of the active exports is the [expanding] electric vehicle industry outside China,” an exporter in China said.

For instance, the EV sales volume in India is forecast to increase by 66% in 2024 compared with 2023 and take a share of 4% of the total sales of EVs, according to an industry research institute Counterpoint Research.

In Mexico, the production of electric vehicles exceeded 100,000 units in 2023, up by 37% year on year. The sales of electric vehicles took 19% of total vehicle sales volume in 2023, according to China’s public press People’s Daily.

BYD, JAC Motors, Volvo and other automotive companies, along with Mexican new energy transportation operator VEMO and charging platform Evergo, have jointly established the Mexican Electric Vehicle Association early in 2024. The association’s goal is to achieve a 50% share of Mexican electric vehicles in new car sales by the end of 2030, People’s Daily reported.

Rising capacity drives exports need

“Exports will be an option for more China’s steel mills because they need to sell their rising production of electrical steel to foreign buyers,” an industry analyst said.

China produced 15.28 million tonnes of electrical steel in 2023, up by 15% from 13.31 million tonnes in 2022, according to data published by an industry body China Society of Metals.

Among the total production, the non-grain oriented electrical steel, which is used to producing motors, was 12.04 million tonnes in 2023, up by 8% year on year from 11.14 million tonnes.

Production of grain oriented electrical steel, used in producing transformers, was 2.65 million tonnes, up by 22% from 2.17 million tonnes in 2022.

Some steel mills are still expanding the capacity of electrical steel due their expectations of increased demand.

For instance, a 1-million-tonne-per-year electrical steel project started construction in September 2023 in Inner Mongolia, with the first phase of the project, totaling 500,000 tpy, is set to into into production in May 2024, according to a notice published by the local government office.

Industry analysts expected the annual capacity of electrical steel to reach 18-20 million tonnes by 2026, compared with the capacity of 16.67 million tonnes in 2023.

Decent margins prompt mills to bet more amid industry downturn

Decent margins amid strong demand at home and abroad encouraged Chinese mills, including the leading ones, to expand their electrical steel capacity, according to market participants.

Given the downturn of China’s steel industry, major mills have already strategically adjust their product portfolio to increase their competitiveness and maintain their leading roles. The great investment in non-oriented electrical steel projects by mills including Baowu Group – the biggest steelmaker in the world, and Shougang Group, is an example for that, an industry analyst in China said.

Shougang Group, a leading Chinese steelmaker and major electrical steel supplier, said in November 2023 that electrical steel is its star product. Its capacity of high-grade non-oriented electrical steel used in EVs has reached 550,000 tonnes per year, and its total electrical capacity will reach 2.2-2.3 million tpy by 2025, with high-end products accounting for over 70%.

High profits from high-grade electrical steel thanks to growing demand from the booming EV market prompted Shougang to increase the capacity of the product, according to the Beijing-headquartered steelmaker.

Shougang has exported its electrical steel to more than 24 countries and regions, and it will continue its expansion in the overseas markets to increase the ratio of exports to avoid homogenization of competition in China given the growing electrical steel capacity.

Baosteel (Baoshan Iron & Steel Co., Ltd.), which is the listed arm of steelmaking giant China Baowu Steel Group, said in 2021 that electrical steel was its most profitable product, following by automotive sheet, heavy plate, and pipes. More than half of driving motors in China-manufactured EVs used non-oriented electrical steel produced by Baosteel, the steelmaker said in October 2023.

Data from China’s National Bureau of Statistics show that the country’s ferrous metal smelting and rolling processing sector recorded a total revenue of 8.34 trillion yuan ($1.15 trillion) in 2023, down by 2.2% year on year.

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