CY'21: The Year that was for Indian steel industry

Calendar 2021 was marked by several ups and downs for Indian steel mills. The Chinese export rebate cancellation was a major influencer. The second Covid surge and ensuing oxygen crisis stifled crude steel production for a month. Even as output bounced back, renewed post-lockdown industrial activity led to a sudden mismatch in power demand and generation, leading to domestic power shortfall, which was subsequently alleviated by increased coal production by Coal India.

Indian mills exhausted and exceeded their Europe exports quotas in the first five month of the year to stay afloat during the Covid surge, while the European Commission extended safeguard measures for another three years. Auto production was hit by the semi-conductor shortage while mills intermittently raised prices, in tandem with their export prospects.

Prices

• Steel: Indian steel prices started rising from the second half of May'21, propelled by China's cancelling of the 13% rebate on exports of 146 products, including HRCs, wire rods, rebar, galvanised sheets and others. This pivotal move pushed up global flat steel prices by around $100/tonne and Indian domestic prices too on the back of greater export opportunities.In fact, the China measure, along with increased export volumes to Europe, helped to raise trade-level domestic HRC rates from April onwards.

  Prices, which had been hovering in a moderate range of INR 54,000/t ($723/t) over Feb-Mar'21, started a northward journey from Apr'21 (INR 62,500/t, or $836/t) that culminated at a record INR 70,900/t ($949/t) in Nov'21. The post-pandemic pent-up demand had peaked in the Jun-Sept'21 quarter pushing up both HRC and CRC prices to record levels.
  
  

Prices started dipping around Jul'21, dragged down by monsoon when demand traditionally dampens but picked up from October, buoyed by an upturn in global prices and consumption, but dropped off later in the year in line with global steel prices, especially in China.

This year also saw the spread between benchmark HRCs and CRCs hit record two-year lows of INR 5,000/t ($67/t) in Oct'21 and also a record high of over INR 16,000/t ($214/t) in Jun'21. Serving Europe's pent-up demand post-lockdown saw flats demand soaring, and influencing the spread.

Indian steel price trends in CY'21

Source: SteelMint Research

The blast furnace and induction furnace route rebar price difference also climbed to a record over-INR 10,000/t ($134/t) in Nov'21.

HRC and BF-grade rebar spread too shot up to record INR 16,000/t ($214/t) in Jun'21 with flats demand rising in Europe.

• Iron ore: Two of steel's major input materials, iron ore and coking coal showed record northward trends this year. For instance, global iron ore prices hit stratospheric above-$230/t for the Fe62% grade, forcing Chinese mills to fall back on cheaper pellet exports from India. This sentiment fuelled domestic iron ore prices with the similar grade emerging from Odisha touching a high of INR 9,200/t ($123/t) in Jun'21.
  
  
• Coking coal: Prices of the premium HCC coking coal from Australia surged from $135/t CNF India to $425/t CNF in CY'21. With the pandemic receding, economies across the globe picked up, including India and China. But China faced fossil fuel shortage despite producing around 50% of the world's coal, leading it to scoop up from ex-Australia sources, fuelling the price rally and impacting BF mills in India although the forward quarterly contracts offered some price buffer.
  
  

Exports: India's steel exports, which comprise around 35% of mills' total sales, hit over one-year high in Aug'21 as vessel and container issues in the previous months led to material de-bottle-necking. As per SteelMint's estimates, volumes may rise around 16% to almost 20 mn t this calendar compared to 17.50 mn t in CY'20. If last calendar was driven by Chinese demand, the current year's flavour was Europe, directly and indirectly. Volumes in Dec'21 may remain stable m-o-m at around 1 mn t but this is a plunge from the record 2.6 mn t seen in Jun'21.

China's strategic exports de-focus also helped open up newer overseas destinations like Turkey, South Africa etc.

However, volumes tapered off to nine-month lows in Nov'21 with Europe's consumption drying up and both demand and prices in China ebbing on production cuts, which pressured Indian domestic prices.

Production: India's crude steel production increased y-o-y. Data till November reveals output at 105.3 million tonnes (mn t) against CY'20's 99.08 mn t. But, thanks to last calendar's Covid washout, the growth this year will be on a lower base.

Production in Apr'21 dropped a sharp 17% m-o-m on oxygen diversion due to Covid to 8.30 mn t against 10.03 mn t in March. However, it bounced back to 9.2 mn t in May as mills limped back to 95% utilisation and soon after reached their optimal capacity.

JSW Steel started operation of the second 5-mntpa brownfield Dolvi capacity expansion which will add to India's total crude steel output from the new calendar. JSPL is slated to add 1 mn t at its Angul facility in CY'22. India's overall production is expected to touch 120-122 mn t in CY'21, as per Indian Steel Association estimates.

Imports: India's steel imports, which mainly comprise API grade HRCs used in government infra projects and a smaller share of electrical steel, are expected to remain stable y-o-y at around 3.90 mn t (3.84 mn t in CY'20). Imports remained in a limited range because of higher landed costs compared to domestic. Around a month back, imports from South Korea hovered at $1,055/t CFR Kandla (INR 79,125/t) against domestic rates of INR 76,000-78,000/t ($1,017-/1,044/t).

Margins: The Oct-Dec'21 quarter's margins will be squeezed compared to Jul-Sept'21 because of coking coal costs and lower prices. It may be recalled, list prices of flat steel were cut by around INR 2,500/t ($33/t) for early Dec'21 supplies. Rebar prices were reduced by INR 3,000/t ($40/t) and wire rods, by INR 2,000/t ($27/t).

Outlook

In CY'22, SteelMint expects crude steel capacity to increase on the back of JSW Steel's 5 mntpa Dolvi expansion (already gone onstream) and JSPL's projected addition of 1 mn t to its existing 5 mn t capacity at Angul. India will see at least 6-7 mn t increase in capacity next year. If the business-as-usual 7-8% annual growth sustains, India will have to maintain exports at CY'20-'21 levels of around 20 mn t since domestic demand will not be high enough to absorb the entire additional capacity in the short to medium term. In a worst-case scenario, the additional capacity may not come up or mills may have to cut output.

Consequently, prices may not scale new highs in CY'22 as mills would need to maintain a balance between additional capacity and demand.

However, any unforeseen major policy change in China can change the matrix.