India’s steel exports unlikely to rise sharply in short term despite duty withdrawal

• Jan-Oct’22 exports drop 40% y-o-y
• Export shipments in Oct fall 38% m-o-m
• Exports may rise from Q4FY23, though soft global steel demand a pressing concern

Morning Brief: India’s steel exports in the first 10 months of CY22 (January-October) fell by over 40% y-o-y to around 9.3 million tonnes (mnt) from over 16 mnt in the corresponding period last year, as per SteelMint data. Although market sentiments have received a boost after the government’s withdrawal of the 15% export duty on finished steel, export volumes in the remainder of this calendar year may not rise significantly.

In fact, although the leading mills are now likely to be more aggressive in offering to overseas buyers, the benefit of the export duty removal will likely be witnessed in the last quarter of the ongoing fiscal (January-March, 2023), as any surge in volumes from here on will only be reflected after a lag of a couple of months, SteelMint notes.

Therefore, exports in CY22 are likely to remain considerably lower than the 18.5 mnt of shipments recorded in CY21. October exports at a little over 425,000 t were around 38% lower m-o-m compared to roughly 700,000 t in September. However, exports have crashed by nearly 75% y-o-y from over 1.6 mnt recorded in October 2021.

Exports to leading geographies
One reason why export shipments by India may not witness a sudden surge post tariff withdrawal is the gloomy global steel demand scenario. While the EU is battling high inflation and soaring energy costs that have dented steel demand and production, global sentiments remain largely deflated due to strict COVID curbs and resurgence in cases in China, not to forget the continuing downturn in China’s property sector despite the government’s recent policy intervention.

That apart, hyperinflation, slow recovery from the pandemic, and currency devaluation have dampened steel demand in the entire South East Asian region, which is a major exporting destination for Indian mills.

In fact, numbers do all the talking: India’s steel exports to the EU, the top destination for the primary mills, edged lower by around 45% to 2.25 mnt in the January-October period this year compared with over 4 mnt in the same period last year. Eurofer, the representative EU steel industry body, estimates that high energy prices and recessionary trends in the European economy are likely to drag steel demand lower by 3.5% in 2022 and 1.9% in 2023.

Moreover, the threat of competitive imports from countries that don’t share the EU’s ambitious carbon emissions abatement goals is evident for the steel industry in the EU. Therefore, despite the hike in the import quota for India, the long-term outlook remains unclear, to say the least.

However, contrary to the lack of acceptance for alloyed (boron-added) Indian hot-rolled coil (HRC) in the EU, buyers in South East Asia had no such reservations. Despite this key factor, shipments to Vietnam, the other major steel importer from India, shark by around 35% on the year to just over 900,000 t during the period under review from over 1.4 mnt in the same period last year.

This was due to declining domestic steel prices in Vietnam compared with imports, slow steel demand recovery from the pandemic, as well as competitive offers from China, Japan, and South Korea. However, domestic HRC sourcing is likely to continue at an increased pace vis-à-vis imports, SteelMint notes.

Product-wise exports
Exports of HRC and heavy plates that stand at around 3.08 mnt in January-October this year have plunged 45% compared with 5.7 mnt in the year-ago period. HRC exports comprise around 32% of India’s steel exports, as per SteelMint data. Finished flats exports account for 70% of total shipments.

It deserves to be noted that despite no export tariff being imposed on semi-finished steel, India’s billets exports dropped sharply by over 60% y-o-y in January-October, 2022 as against the corresponding period last year to around 1.68 mnt from 4.6 mnt.

Higher bids for steel billets in the domestic market (than those from the key importing nations), cost-effective offers from the CIS exporters, and higher domestic realisations weighed on billets exports.

Outlook
Steel exports are likely to inch up marginally in the remainder of this calendar year, given global headwinds and the lag showing for bookings. However, Q4FY22 is likely to see higher overseas bookings by Indian mills as well as higher operating margins of the primary steel producers, who would typically aim for 15-20% of exports out of total annual sales.