Nepal’s billet imports slide as melting capacity rises

Nepal posted a 21% y-o-y drop in billet imports from India in the Jan-June period, as more melting capacities were added in the Jan-Mar period, while Covid19-related lockdown in April and May shut down downstream industries in Nepal.

Nepali steel producers added over 16,000 t/month of additional billet production capacities in Jan-Mar, mostly by Ashok and Narayani mills. Another producer Pashupati is in the process of adding 12,000-15,000 t/month capacity.

Sponge iron imports from India by Nepal increased by 31% in Jan-June as buyers took advantage of a sharp fall in prices in the Jan-Mar quarter to book additional cargoes. Sponge iron deliveries usually have a lead time of two months, while billet deliveries take around two weeks.

Demand for steel in Nepal is quite bleak at present, roughly at 10% of usual monthly sales levels, said the director of a Nepal-based steelmaker. Retail demand is quite negligible while demand from government-funded projects has slowed sharply. “Not only will steel imports be lower but these may even stop in the near-term if demand scenario remains this dismal,” he said. Steel prices have fallen by around 15% in June.

Stocks at Nepali mills are rising, with the director saying his mill is storing 90% of its monthly output since operations started in June. “Usually mills have 1.5 months storage capacity in Nepal, so my mill is about 15 days away from exhausting storage capacity,” said the director.

Import of sponge iron may increase in the second half of 2020, as electricity tariff has been clarified for the steel sector, which will significantly lift utilization of domestic furnaces. Mills were being levied an additional 65% payment demand on top of their electricity bills for the past two years which was being disputed by mills. Recently, a policy to incrementally raise tariffs for steel mills has been introduced bringing more certainty to electricity cost for the sector.

Sponge capacity use may even double on a y-o-y basis from August or September, said the director. Average sponge iron output was around 15,000-20,000t/month in Nepal in 2019.