Will EU energy crisis, Korea supply disruptions impact Indian steel mills?

• Steel composite index stable w-o-w
• SE Asia seizes export opportunities to EU
• Korean mills’ supply disrupted by fire, typhoon

Morning Brief: The India Steel Composite Index dropped a marginal 0.4% to 150.90 points for the week ending 8 September, 2022. However, this was the lowest point the index has reached since mid-April, 2022.

Both the longs and flats indices also dipped but negligibly. Longs eased by 0.13% and flats by 1%.

Factors keeping the index low

• Domestic demand not good enough: Domestic demand is better than in previous months but not good enough to balance out the supply. End-user demand is low at present, mostly because of the festivities. But dealers and retailers are sitting on low stock levels on account of need-based buying.Mills have returned from maintenance shutdowns and thus the demand-supply balance has again tilted marginally, and not supporting any price hike proposition currently.
• Export tax impact aids price downslide: The export tax has negatively impacted overseas sales and is aggravating the drop in prices. Alloyed HRCs (boron-added) were offered in the exports market but met with lukewarm demand. This played a role in cooling down prices as allocations of HRCs for exports were then diverted towards the domestic market.Flats demand from Europe has nosedived amid the fact that downstream sectors are still overstocked. With inflation rearing its ugly head, purchasing power has reduced, leading to an overall drop in consumption in end-user segments like automotive, white goods etc. Thus, even if India were to revoke the 15% export duty, slapped since 22 May, mills will not see an immediate upswing in export demand and bookings from the EU. This is another factor not supporting any price hikes.

Developments that can impact India

• Europe’s energy crisis: The main talk-point in industry circles is the intensifying energy crisis in Europe, which, as per the EU steel industry, has hit “life-threatening” proportions, and its possible fallout on the Indian mills. Gazprom’s recent failure to resume natural gas supply from its Nord Stream-1 pipeline has put the EU’s already heated-up gas prices on fire.The energy crisis and consequent inflation have pushed mills to cut down production, forcing them to explore import options in billets and finished longs from South East Asia, which have touched more than 100,000 tonnes in the recent past.

  Countries in Asia, not directly dependent on Russia for gas, are still insulated from the energy crisis and thus their cost of production is competitive, allowing them to offer cheap.

  “We can expect some traction in billet and rebar exports after prolonged dull sentiments. We are not yet sure how the volumes and prices will trend, but yes, some excitement has been injected back into the export market,” said a source.

• Will this excitement percolate down to Indian mills?
  This is an open-ended question at present since the current offers from Southeast Asia are unviable for Indian mills. Billets export offers to Europe are nudging $510-520/tonne FOB South East Asia. These are not viable against domestic offers that are above $600/t in dollar parity.
• Korean supply disruptions
  Korean steel giant POSCO cut back production close on the heels of the recent fire that broke out at its Pohang works. That apart, Typhoon Hinnamnor has caused flooding at both Hyundai and POSCO plants, that will translate into supply disruptions from Korea in the short term. This may have a positive fallout on Indian mills, Korea being one of the largest flat suppliers globally. Some of the customers could be catered to by Indian mills.