- Export duty, EU demand slide contribute to low volumes
- Vietnam’s slow post-Covid recovery, preference for domestic material impact Indian mills
- Exports to stay subdued amid inflationary pressures, 15% govt levy
Morning Brief: Indian steel exports dropped a steep 53% in April-September, 2022 or first half of financial year 2022-23 (H1FY23) to 5 million tonnes (mnt) against almost 11 mnt seen in the same period in H1FY22, reveals data maintained with SteelMint.
Flat steel exports declined a substantial 44% to 3.66 mnt (6.53 mnt) y-o-y, semis plunged 66% to 1 mnt (3 mnt) and longs by a whopping 69% to 0.43 mnt (1.40 mnt) in the period under review.
Exports up m-o-m
On a m-o-m basis, however, exports rose 24% to 0.81 mnt in September, 2022 against 0.65 mnt in August, on account of some consignments shipped to Vietnam. Data shows that Vietnam’s share as a standalone country was the highest in September at 0.25 mnt or 30%.
“In September, a major primary mill was active in deals to Vietnam while yet another integrated steel major sold some cargo to the Middle East,” observed a source.
Reasons for the poor show in H1 exports
1. Export duty stuns market into silence: The 15% export levy from the third week of May dealt a body blow to exports. The levy is still under implementation and government feelers indicate it is not going to be lifted soon, in an attempt to stave off inflationary pressures. The mills tried to work around the tax by resorting to exports of boron-added hot rolled coils (HRCs). But there were not too many takers for the same in overseas markets. Eventually, Indian mills concentrated on the Middle East and Southeast Asian markets like Vietnam that traditionally import considerably. But, overall, demand for finished steel has been weak globally amid currency slides and inflationary tendencies.
2. Vietnam’s post-pandemic recovery slow: This Southeast Asian country has been slow in its recovery, post-pandemic. Plus, buyers here have shown preference for domestic HRCs. Domestic steel major Hoa Phat reported higher sales for the first nine months of 2022 on a yearly basis. Sales of construction steel, HRCs and billets rose 3% y-o-y over January-September, 2022. Consequently, Vietnam’s imports from India fell 45% to 0.50 mnt in H1FY23 against 0.98 mnt in H1FY22.
3. Demand from EU drops: The EU enjoyed a leading 24% share in India’s steel exports in calendar 2021. However, some major factors spoilt the party this year, although volumes in H1 are still the highest at 1.40 mnt. This is due to the bookings made earlier in the fiscal year, after the onset of the Russia-Ukraine war, when EU pressed the panic buying button. These consignments are being delivered although volumes have dropped since May’s peak of 0.42 mnt. August volumes were a mere 87,000 tonnes while September saw 0.13 mnt going to the EU.
Inflation, fuelled by spiralling natural gas and energy prices, has ensured a sharp demand drop for steel in Europe. The Russia-Ukraine war has contributed heavily to the inflation, robbing end-users of purchasing power. That apart, demand for boron-added HRCs was low in Europe and other regions, contributing substantially to India’s low export volumes in H1.
Outlook
Exports account for 15-20% share in India’s steel production but are likely to remain subdued in the short to medium term due to two factors. One is that other countries (Japan, China, Korea etc) are also active in exports (and with offers lower than those of Indian mills), due to the currency slide which is making overseas sales more lucrative. Two, in India, domestic realizations are higher at present, allowing mills to take their focus off exports, which, in any case, are not offering any solace at present. In fact, Indian mills have held back their offers over the last three weeks or so, indicating that November shipments will be few.
Additionally, the 15% tax will continue to limit export forays.
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