Headed for Russia?
A recent surge in Chinese steel exports could be supporting the Russian war effort
In the past 1½ years, Chinese exports of steel products have increased 52%, or by 32m tonnes to 91m tonnes. This is equivalent to 3.7% of global ex-China steel demand or 9% of global ex-China steel exports in 2022.
Where are these steel exports going? One possibility it that they are supporting Russia though “transhipment” destinations.
“Direct” (not transhipped) Chinese steel product exports to Russia have grown but remain small (2.8m tonnes in 2023 vs. 1.8m tonnes in 2021).
Whereas steel products headed to potential transhippers have grown much more than those headed to the “global West.” Chinese steel products to transhippers grew by 7m tonnes between 2021 and 2023, accounting for 26% of the increase, even though these countries made up a smaller share (14%) of the total in 2021.
Ultimately, the evidence on the precise destination of China’s growing steel exports is circumstantial. But the expansion of steel production by China during their downturn has in any case added to the global supply, supporting the Russia war effort through lower prices than otherwise.
There has been a sharp increase in exports of Chinese steel products since Russia’s invasion of Ukraine in early 2022. Exports of steel products increased 52% between April 2022 and December 2023 in 12mma terms.
Over 60% of the increase in steel exports between Apr-22 and Dec-23 (in 12mma terms) is due to steel sheets and plates.
Are steel products transhipped to Russia?
To support this possibility, we split countries into “global West”, “potential transhippers” and “others” (this data source is different from the one showed above). The two below sections use three different datasets:
Chinese data on steel exports
Chinese exports of steel products to the "global West", which are unlikely to tranship products to Russia, rose 16% between 2021 and 2023. But products to Russia and potential transhipment countries rose 56% and 63%, respectively. Exports to other countries rose 53%. (China only report steel product exports for certain countries, and this has limited which countries we were able to include in the sample).
Meanwhile, exports to Russia, potential transhippers and other countries began rising in early 2022, whereas exports to the global West only began rising in 2023. In addition, it seems unlikely that 'organic' steel demand (domestic growth * steel intensity of growth) grew three times as much in Russia, potential transhipment countries and 'other' countries than in the global West.
Looking at the change in volume terms, the global West account for 22% of the increase in Chinese steel product exports between 2021 and 2023 (see below chart), much smaller than its 49% share of Chinese steel product exports in 2021. Potential transhipment countries accounted for 26% of the increase despite making up 14% in 2021. 'Other countries' made up 49% of the increase in Chinese steel product exports and 34% of the total in 2021.
Cross-checking Chinese country data against destination country imports
Total imports by the “global West” (EU, US, Canada, UK, Switzerland, Japan, Korea, Taiwan, Australia, New Zealand) have grown more than Chinese steel exports to these countries have grown. This means the share of imports that are steel product imports has fallen.
Meanwhile, total imports by potential transhippers have grown less than the amount that Chinese steel exports to these countries have grown.
Curiously, Chinese steel exports to the countries, though in Dollar terms, grew more slowly prior to Russia's invasion of Ukraine. But a few months after Russia invaded Ukraine, Chinese steel product exports to these countries started to increase quite rapidly. This adds another layer of circumstantial evidence that Chinese steel product exports might have ended up in Russia.
UN Comtrade Data
Finally, UN Comtrade data suggest that imports of Chinese steel products among potential transhippers has risen 20% between 2021 and 2023. Exports of steel products to Russia in this group has, however, increased nearly 200%.
This data does not confirm that Chinese exports of steel products were primarily transhipped to Russia. But we would think that countries would be likely to underreport exports to Russia than imports from China (something which adds to the credibility of the reliability of the data).
In the above group of (mostly small) potential transhippers, Turkey made up 83% of the increase in exports to Russia and 54% of the increase in imports of steel products from China.
The increase in imports from China and exports to Russia coincide closely with Russia's invasion of Ukraine, though the reported increase in exports to Russia is just one-third of the increase in imports from China. The evidence that Turkey is transhipping Chinese steel products to Russia is therefore relatively convincing, even if the scale is small (and broader evidence of Chinese steel products being transhipped to Russia is less compelling).
Regardless of the channel, China’s focus on expanding steel production during their domestic downturn has increased the global supply of steel available to support Russia’s war effort via a better terms or trade than the counter-factual.
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Chris some additional questions your article raises:
- Why would steel require transhipment to Russia, rather than direct? like in oil and other commodities China and Russia trade direct?
- What makes you condfident that the steel is going to Russian arms, rather than other uses?
- Could China steel be going into steel production in Ukraine as well? have you done that analysis?
Chris, I enjoyed reading this investigative piece. It raises two questions:
a. I believe Russia was an important exporter of steel before the war, importantly to Europe. Can you contextualise the redirection of those exports afor domestic or other export markets?
b. have you tried replicating this analysis for other sectors and products?