Indian steel exports to cross 20 mn t in FY'22. But is China threat or opportunity?
Indian steel exports can reach to 20-22 million tonnes (mn t) levels in financial year 2021-22 (FY’22. Last fiscal, India’s exports were at around 15-16 mn t....
Indian steel exports can reach to 20-22 million tonnes (mn t) levels in financial year 2021-22 (FY'22. Last fiscal, India's exports were at around 15-16 mn t.
Indian mills are facing two major challenges in the form of:
- Logistical issues: Because of the strict Chinese quarantine rules, business has been hard; and
- Domestic market performance: For instance, Indian mills have indicated that if the domestic market works out fine then they will increase their exports ratio.
However, what will be the impact of the China factor on Indian steel exports? Where are the opportunities and challenges? Rajeev Vyas, Founder and Managing Director, Vinar Overseas, dwelt at length on these areas while speaking on the topic, "Will India's steel exports hit an all-time high in FY'22?" at "Engage", a five-day webinar series organised by SteelMint over 18-22'Oct'21.
Price competition?: While China is an opportunity, it is also a threat for Indian mills, Vyas observed. "China's exports this year have crossed 53 mn t and the government there has stopped any further exports. So starting January next year, China will again open its quota of 50-60 mn t which may come in competition with India. This may not be direct, but there will at least be some price comparisons etc," said Vyas.
Current Chinese FOB offers are ranging from $970-990/t compared to the previous week's $975-995/t. The Indian HRC index price is $873/t FOB east coast, flat w-o-w.
He further said, in the short term - in quarter 1 or 2, India might see some competition from China.
In 2019, China left behind an exports void of 69 mn t and "no one else but only India was capable of filling it up". But India mills have been able to plug only 14-15 mn t of this gap. They perhaps could have done a couple of tonnes more but the growth in the domestic market, maintenance and shipping issues and goalpost changes by China on quarantine issues got in the way.
Production cut impact: The Chinese government, wisely, has reversed its policies. Rather than importing coal, coke and iron ore from Australia, South America etc, making steel, shipping it cheap, and causing pollution, it has decided to opt for greener value-added material. "Why will China export billets and HRCs when it can export automotive components, bicycles etc? Overall Chinese steel exports have grown around 29% this year. We do not see the Chinese offers in India but they are operating in other territories and rather efficiently," Vyas explained.
He also reminded that China's Shandong Group, the largest EAF player there, has been asked by the government to cut back production by 25% with immediate effect. "This could have some dampening effect on semis exports because Shandong Group is one of the largest buyers of semis like billets from Indian mills," he indicated.
Rebate removal impact: Chinese steel became less competitive with the removal of the export rebate, Vyas said. Further, Chinese authorities were in talks on imposing an export tax on HRCs. "If this happens, Indian mills will benefit more," he added.
China will not come back big time to the exports market in the next six months to one year because of its carbon neutrality goals.
Indian mils shifting focus
Europe quotas exhausted: Indian mills have maturedly shifted their focus from Europe to newer markets although they did not lack orders from this zone. Already, a lot of material has been lying at ports because of the exhausted quotas, Vyas reminded. "But mills developed markets like Turkey, Middle East, Vietnam and Korea," he added.
New markets: Indian steel exports are not limited to geographical boundaries now. Mills are reaching exotic locations in South and Central America, including the Dominican Republic, Guatemala, Brazil, Venezuela, etc, exporting substantial volumes.
"Mills are in the nascent stage of developing these newer markets (especially South America). However, there are shipping-related concern (astronomical freight rates, container availability issue). Secondly, Indian mills need to adjust to South American preferences like smaller coil weights, thinner gauges. This may not be as big a market as Europe or Vietnam but in times of need, South and Central America can be a big opportunity," Vyas elaborated.
Losing Vietnam interest? Indian mills have lost short-term interest in Vietnam because of pricing issues. In the last three months when Vietnamese bookings were down and Russian mills were making aggressive offers at $840-845/t, Indian mills were not inclined to following those prices because a few went into maintenance while others had orders for Turkey, Middle East, Egypt etc. Vietnamese buyers are willing to pay Indian mills a premium of $10-15/t over the Russian offers. "But Indian mills decided not to opt for bids lower than $900/t because of the short-term demand in the domestic market. Vyas feels Indian mills should not lose their foothold in Vietnam, it being logistically well-connected and a growing market.
Indian steel exports can reach the 30 mn t mark in the next five years, provided everything goes well.
In the short term, there will be spot, niche opportunities from Europe but which will not create a blip on India's exports radar.
Challenges such as energy consumption due to coal shortages may impact exports, since Indian steel makers dictate their prices. "But, more than cost of energy, the domestic market's performance will impact exports. If the domestic market works out well, export allocation will also increase," Vyas rounded off.