Indian steel exports drop in July, trend may continue into Aug

• Export volumes drop m-o-m, y-o-y in July  
• Subdued demand, inflation, sliding currency suppress demand globally  
• Trend may persist in short-to-medium term

Indian steel export in July 2022 dropped a sharp 33% to 0.62 million tonnes (mnt) against 0.93 mnt seen in June, 2022. Y-o-y, volumes plunged 76% compared to July 2021. Exports have been declining steadily m-o-m since the 15% export duty was slapped from 22 May this year. From 1.50 mnt in May’22 these slid to 0.93 mnt in June. 

Over January-July, 2022, volumes were at 8.83 mnt, dropping 30% against 12.50 mnt seen in the same period in CY 2021. 

Overall, July saw a sharp uptrend in electrical steel exports to 0.16 mnt in July. Prior to June (72,000 tonnes), these were at negligible levels and are an indication that mills tried to work around the export tax with boron-added hot rolled coils (HRCs). 

Billet exports fell 40% m-o-m in July to 0.14 mnt from 0.24 mnt in June amid bid-offer disparities in global markets and higher domestic realisations. 

Country-wise trend 

Although volumes to the European Union (EU) were the highest amongst all the key export destinations, these dropped a substantial 38% m-o-m drop to 0.19 mnt in July compared to 0.31 mnt in June. But these were previous inventories which got shipped in July. In any case, there was low acceptance for boron-added hot rolled coils (HRCs). 

Exports to Vietnam dropped 37% to 38,182 tonnes (t) against 60,159 t in the previous month due to lower downstream demand and cost-effective offers from China. 

Reasons for the drop in exports 

• Export tax impact: The key reason, of course, was the 15% export duty slapped on key intermediaries like hot rolled coils and other items. As a result, the tier-1 mills soon saw exports of finished items coming to almost a standstill. India’s finished steel exports, including semis, thus dropped 34% to 3.78 mnt in Q1 (April-June, 2022) against 5.77 mnt in the year-ago quarter. A senior Indian Steel Association official said, when the export duty was levied in May, prices had already touched $100/t below the peak levels seen in April. “Thus, in a double whammy, the duty was imposed in a falling market,” he stressed.

• Falling global prices: Global steel prices saw a meltdown propelled by the fall in iron ore prices — as China’s realty market crashed and mills undertook production cuts — subdued global buying sentiments, and the resultant inventory pile-ups. From April till the third week of July, prices in the US fell by 41%, and Northern EU by 43%. In China, benchmark rebar fell 20% from a high of RMB 5,092/t exw Donghua ($750/t) in April to RMB 4,056/t ($597/t) in July. HRC export prices dropped 31% from a peak of $901/t FoB China in April to $623/t in July. Indian steel prices, one of the lowest globally, were even more impacted by the export tax since it was implemented in a falling market.  
• Inflation concerns: With the world in the grip of an inflation, the steel industry too is feeling the heat. Record high gas and energy prices — triggered by the pandemic and subsequently aggravated by the Russia-Ukraine crisis — have fuelled the inflation. Steel downstream users, on their part, hedged in by squeezed margins, supply disruptions and high logistic costs, are floundering. With demand dropping globally, several countries, including China and India, have undertaken substantial crude steel output cuts. 
• Currency depreciation: The Indian rupee (INR), as with all major currencies, has been depreciating against the dollar ever since Russia’s war with Ukraine erupted — which led to spiralling crude oil prices. There are growing concerns how a weakening rupee will impact economic growth. A weak rupee means greater forex outgo on account of costlier imports. The rupee has depreciated by more than 7% to the dollar since the beginning of 2022 and is said to be scraping the lowest levels in four years. A forex analyst said the currency is expected to decline further in the coming months. 

The above scenario is not just applicable to India but globally as well, although Indian mills have the additional disadvantage of the export tax. SteelMint heard that, globally, downstream users are not stocking up and procurement is strictly need-based at present. “It is rather a hand-to-mouth scenario,” remarked a source, underscoring the fact that end-users do not want to lock in their funds for too long. Consequently, the steel trade has been rather subdued over the last few months.  

Outlook 

The market buzz is that the Indian government may review/roll back the export duty. But, even if this happens, it is unlikely that exports will resume/pick up immediately because the challenges of low steel prices, energy inflation and subdued demand will likely persist in the short to medium term. Thus, August will not possibly see any sharp upturn in export volumes.