- Declined global demand, exports challenge pull down bulk HRC exports
- Currency erosion helped Japanese mills to export
- Price viability makes imports lucrative for Indian buyers
- Trend may reverse from Q4 as currencies strengthen, prices improve
Morning Brief: India’s bulk imports of hot rolled coils (HRCs) surpassed exports in October-November, 2022, reveals data maintained with Steelmint. Bulk HRC imports during these two months amounted to 0.74 million tonnes (mnt) against 0.47 mnt of exports. This is interesting since the share of HRCs has traditionally been the highest not only in the flat steel basket but also amongst all finished items exported from India.
In fact, over January-September 2022, the share of flats in India’s steel exports of 5.41 mnt was an overwhelming 72%. Within flats, however, the share of HRCs had dropped to second position with 33% against electrical steel’s highest slice of 34%. But in the entire financial year of 2021-22 (FY22), the share of flats was the highest at 11.54 mnt in the total of 18.78 mnt. Within flats, HRCs enjoyed a leading 60% share.
Factors behind the trend
1. Export duty challenge: Mills faced an uphill task in 2022 in exporting with the 15% duty slapped in the third week of May. This duty was only recently revoked. But during its implementation period, exports became unviable. Since HRCs formed the bulk of Indian steel exports, the same suffered the most. To get around the duty diktat, mills tried exporting boron-added HRCs but which found very few takers. Thus, exports dropped sharply.
2. Lukewarm global steel prices: There was an overall decrease in global steel prices for the better part of 2022. Export offers, from a high of almost $1,000/t, have steadily languished and dropped to a little above $560/t levels FOB in November.
Although prices did rise in August, these started declining again from September and fell even further in November, SteelMint data showed. Chinese HRC export offers FOB Rizhao, dropped from above $900/t levels in April to $550/t in November.
3. Currency depreciation: There has also been a steady erosion in global currencies. The Japanese yen, the third most traded currency, fell to a record 24-year low against the dollar around June this year. The yen’s value erosion increased export earnings for Japanese mills when converted against the dollar. This led to increased steel exports from Japan and some of it found its way into India.
4. EU demand slowdown: EU, which has been a major destination for Indian steel exports, has been slowing down since Q3CY21 due to continued downside factors like supply chain issues, energy prices and very high inflation. Similarly, Southeast Asia too has been impacted due to extended Covid restrictions slowing demand for imports.
5. Price viability: Imported HRCs were more viable in terms of prices. For instance, trade-level average monthly HRC prices were at INR 57,200/t in August, INR 56,250/t in September and at INR 56,800/t in October and INR 56,000/t in November. In contrast, the landed cost of imported HRCs, in dollar parity, was at INR 49,000/t levels. This price differential looked attractive to many end-users like pipe manufacturers.
Trade sources say that the imports have spooked mills, driving them to recently slash prices further. They also inform that the quality of the imported materials may be inferior compared to domestic.
Outlook
However, now that the export duty has been revoked, Indian steel exports, especially HRCs, are expected to pick up in the short term. The downside here is in the form of subdued global demand. The upside, of course, is that globally, prices are stabilising. Chinese HRC (4.5-12 mm) prices, exw-Tianjin, have regained from RMB 3,720/t to the more recent RMB 4,000/t. Ex-Rhizao Port export prices of HRCs (3-12mm) have shot up from an average of $515/t a month ago to current levels of $580/t. This uptrend may excite mills to raise export offers and explore overseas sales more deeply.
Sources inform SteelMint that although imports will continue into the short term — since bookings have been made till January- they are likely to eventually reduce in the fourth quarter (January-March 2022). Because, with the Japanese currency having appreciated, not too many bookings are being heard from this country. The currency appreciation has removed the export support to Japanese mills which may decelerate their overseas sales from here.
In India, production cuts undertaken will restore the supply-demand balance and give some support to mills by easing inventory pressure.
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