- Iron ore production rises amid crude steel output increase
- Scrap imports fall amid cheaper domestic options
- Prices may stay supported on firm demand expectations
Morning Brief: India’s crude steel production rose in FY’24 but prices of steel and certain raw materials declined. BigMint goes behind the scene:
STEEL
Crude steel production: India’s crude steel headed north by 14% in FY’24 to 144 mnt compared to 126 mnt in FY’23. The growth was undoubtedly spearheaded by the IFs whose output grew 25% to 50 mnt against 40 mnt in FY’23 while the EAFs showed 12% growth to 31 mnt. Capacity expansion of around 10 mnt by major IF players contributed to the increase in output too. Further, IF mills with captive sponge iron plus waste heat recovery plants reaped better margins amid the fall in coal prices, encouraging higher production.
Finished steel production: Output of finished steel rose 13% to 139 mnt (123 mnt) in the period under review.
Consumption: Steel consumption was up 13% to 136 mnt (120 mnt) in the period, supported by increased demand, seen especially in the second half of the year. Demand for longs particularly spurted as buyers scrambled for some pre-election restocking to keep infra construction buoyant.
Exports: India’s steel exports recorded a 21% growth in FY’24 to 10 mnt (8 mnt). The 15% ad valorem duty imposed in May 2022 on various alloy and non-alloy steels was removed in November that year, which unleashed a slew of export deals. Europe continued to lead the charts in FY’24 on the back of the quota fulfilment spree, despite lukewarm demand. However, Chinese pricing was a challenge mills had to deal with, along with tepid global demand.
Imports: India’s steel imports rose a considerable 42% last fiscal to 9 mnt (7 mnt in FY’23). Decent domestic demand encouraged imports. Plus cost viability played a key role. Chinese HRCs’ landed prices were lower by 7% pitted against domestic while those from FTA countries were cheaper by more than $20/t.
Prices: HRC, ex-Mumbai, showed a 7% drop to INR 56,000/t ($672/t) against INR 60,400/t ($725/t) in FY’23 while rebar dropped 10% to INR 54,300/t ($652/t) from INR 60,500/t ($726/t). HRCs faced the brunt of excess domestic supply, sluggish export demand and liquidity issues through the year. Rebars too had to cross the hurdles of weak monsoon demand, construction bans in northern India in winter and an overall slackness amid excess supply which led mills, including IFs, to undertake maintenance to cut production. Plus, raw material prices down-trended last fiscal which also kept prices depressed.
IRON ORE
Production: Iron ore production rose 9% to 280 mnt (257 mnt) in FY’24 on the back of several factors. One was the higher crude steel production. Secondly, mineral auctions in key states like Odisha, Karnataka and Goa pushed up production. Miners had received approvals for capacity expansion in states like Odisha, Maharashtra, Karnataka, etc. Production from some auctioned greenfield blocks, too, went onstream. Notably, mining resumed in Goa after over a decade. Thirdly, India’s iron ore exports rose to a 3-year high in FY’24, which also kept production supported.
Consumption: Consumption was up 11% to 235 mnt (212 mnt) supported by higher exports.
Exports: Exports of iron ore fines and lumps surged 125% to 48 mnt in FY’24 (21 mnt). Lifting of the export duty of 50% on iron ore and 45% on pellets, not to forget the 15% levy on finished steel exports in November 2022, proved to be a boon for exports. A flood of shipments were witnessed in the aftermath of the duty removals. Secondly, the higher ore production also kept exports supported.
Imports: Iron ore imports skyrocketed by 198% to 5 mnt (2 mnt) in FY’24. A few factors aided imports. One, high domestic freight rates, and logistical hurdles in the form of rakes shortage posed major challenges to domestic iron ore evacuation. Logistical difficulties tilted the balance in favour of imports for some coast-based mills in monsoon. Two, for steel makers, looking to source ore for plants on the west coast, evacuating domestically from Odisha and transporting the same via coastal shipping was unviable. Landed prices of imported ore on the west coast were lower.
Prices: Odisha iron ore fines Fe62% index prices rose 26% in FY’24 to INR 5,400/t ($65/t) against INR 4,300/t ($52/t) in FY’23.
Removal of the export duty in November 2022 pushed up exports of pellets and iron ore, which in turn supported domestic prices.
SCRAP
Generation: India’s scrap generation rose a marginal 4% to 29 mnt in FY’24 (28 mnt). Domestic generation rose amid smoothened GST issues which had been plaguing the market in the initial part of the fiscal. Resultantly, with market players more comfortable in handling local transactions, generation and collection received a fillip.
Consumption: It spurted 27%, and the additional demand was met through imports. Consumption rose because the share of the IF mills’ output rose last fiscal. Scrap is a key raw material for IF mills.
Imports: Sourcing of scrap from overseas dipped 2% to 10 mnt (10.27 mnt). Imports fell steadily in the last three months of the fiscal because buyers were not interested in booking imported scrap due to availability of cost-effective domestic alternatives like domestic scrap and sponge. Secondly, due to the Red Sea crisis starting November 2023, offers from Europe and US increased, making imported scrap unviable for Indian buyers. Thirdly, because of the approaching elections, the last quarter of the fiscal saw a slowdown in the domestic steel market, which impacted scrap consumption and thus imports.
Prices of melting scrap (HMS 80:20) DAP Mandi: Prices fell 10% last fiscal to an average INR 37,800/t ($454/t) compared to INR 42,100/t ($505/t) in FY’23. Demand for scrap was dull in the first half of the year, which was also marked by active GST raids. Construction activities in Delhi-NCR were stopped, due to pollution issues in winter, which dulled demand. Towards the latter half of the year, the Model Code of Conduct also hampered activities.
COKING COAL
Production: Output rose 11% to 10 mnt in FY’24 (9 mnt). This can be attributed to commencement of new washeries such as Dugda from BCCL. Government initiatives like the Coking Coal Mission 2030 and the Greenfield Washery Development Policy, plus measures from Coal India led to increased exploration of coking coal blocks, opening up of new mines, expansion of existing ones, improved efficiency and revival of discontinued mines on a revenue-sharing basis.
Consumption: Consumption rose 7% y-o-y to 64 mnt in FY’24 (60 mnt) because of increased coal production. The blast furnace-route production rose a nominal 5% to 61 mnt (59 mnt) last fiscal. Consumption was under 10% as the share of BOF route in India’s steel-making basket fell to 43% in FY’24 compared to 46% in FY’23.
Imports: Coking coal imports in FY’24 were up 7% to 58 mnt (54 mnt in FY’23). Persistent shortage of coking coal domestically makes India its largest importer. Imports rose as Australian prices softened last fiscal.
Prices: Prices, CNF Paradip India (0-4mm, HCC) dropped 21% to $257/t ($324/t) Australian prices experienced a decline compared to FY’23 amid reduced steel demand globally, and in India. Plus, a slowdown in China’s real estate sector kept prices down. Furthermore, the price volatility was influenced by geopolitical tensions, prompting buyers to adopt a cautious “wait-and-watch” approach.
Outlook
India’s crude steel production will increase in the medium to long term, which will necessitate higher iron ore production. Steel imports will likely decrease amid government interventions but China’s continued realty woes will exert pressure on Indian exports.
Post-election demand expectations may keep prices supported.
