Having a hard time finding information online about my situation. Only owners manual I don't have for the appliances in my house. Luxors Gas fires - Model - MB-36
When using any gas appliance water is a byproduct of the combustion process. Under normal conditions, this is expelled through the vent into the atmosphere and does not cause any harm. In cold weather however, the vapors may condense on any exposed surface it comes into contact with.
I think your flue is colder than the fire place and condensation is occurring when the hot wet air contacts the cold flue surface. It's happening everywhere on the flue but it's only an issue where rust can also occur. The rust is occurring around the connection between the pipe and firebox evidenced by the rust near the top of the pipe that would not occur if water was draining down the inside of the pipe. Also the inside of the pipe is clean. The edge of the opening in the firebox for the pipe may have had its protective coat of paint damaged during the instillation, or wasn't applied very thick during manufacture.
It's an issue because it doesn't look nice and eventually it will rust through. To prevent future rusting you can paint the affected area with paint, sanding first off any rust or rust stains. You just need to do the area around the pipe. You need paint that is heat resistant. It will say so on the container.