At least 30% of the blast furnaces in China, which have capacity smaller than 500 cubic meters, are likely to be phased out in the longer term,
given their lower energy efficiency and lack of economies of scale. It estimates that crude steel production could be cut by 10%.
Exports from China to recede further, positive for India steel
While China exports declined 38% mom in August to 2.8mn tons, we believe that exports will decelerate further – In our view, this is positive as influx of imports from China in 1QFY11 led to oversupply in the Indian market, which put pressure on domestic prices. To quantify, China contributed more than 50% of total India imports in 1QFY11, vs. 20% in FY10.
Prices to rise further in 4th Quarter, domestic demand stays strong In our view, the Indian steel sector is in a sweet spot, as decline in low–
priced imports from China, coupled with pick up in demand in 2H, will lead to further price hikes. Note that domestic consumption continues to be strong, up 9.4% ytd vs. ytd production at 2.7%. After the price hike in Sep, we expect another round of price hikes (Rs1000-Rs1500, 5%) in early Oct.
Source: Goldman Sachs
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