EU quotas to influence international prices in coming months: AM/NS India

• Export pricing and China's export levels, two key challenges for India
  
  
• Indian mills to benefit from EU quotas
  
  
• Daily uptrend in raw material costs making difficult to assess impact on mills
  
  
• Construction, auto, pipes and tubes to be main domestic demand drivers
  
  
• Therefore, 2022 should be a growth year for India
  
  

Morning Brief: What challenges will India face in the face of the current Russia-Ukraine crisis? Which are the demand areas in India, going forward? What is the scenario with EU quotas? Alain Legrix, director & vice president, sales & marketing, AM/NS India and vice-president, ArcelorMittal, dwelt on these areas and a lot more during ENGAGE 2.0, a webinar series organised by SteelMint over 7-11 March, 2022.

EU quotas, challenges

On the question of exports and EU quotas, he said: "We do not know yet how Europe will manage the quota issues but this will influence international prices in the coming months. Indian mills will benefit, of course, from this situation in their exports."

He added that China too will eventually benefit from this scenario. "But, we expect to see China present more in the exports market, as it has lower domestic demand."

For India, Legrix said, the first challenge will be in terms of the levels of export from Indian mills due to the gap created in Europe and its pricing thereof. Secondly, the level of exports from China will also add to the uncertainty. Thirdly, the impact on India from energy and raw material costs.

Legrix commented from the perspective of flat products, since AM/NS India is currently working on this segment.

Cost impact: Coming to the crucial question of cost impact, he commented: "I do not think we have realised and integrated yet what is ahead of us." All the raw material costs are moving up on a daily or weekly basis due to the Russia-Ukraine crisis. "And, hence, it is extremely difficult for us to give visibility to our customers," he said. For example, scrap prices since January till now have risen by 20%, iron ore by 35%, coal by 25%. It means that Indian steel producers in flat products will be impacted because they are all based on the blast furnace route. Gas energy prices have increased by 35%, ferro alloys have jumped by more than 25% and in some cases by even 35-50%. "So, there is a huge impact. At present, we are unable to evaluate as everything is moving up on a daily basis," he voiced his concern.

Consumption ahead

Construction: Legrix emphasised that where India is concerned, "structurally there is growth, but we see a different speed or dynamic". Reminding about the many ongoing projects and future ventures, he said the tenders space has been reactivated.

AM/NS India has good order book in place and he sees a strong pull from the construction segment where the focus is more on how to promote more steel usage. All these are in context of the medium to long terms.

That apart, he bet on many other segments which are stronger than in previous years. Pipes and tubes, for instance, which is pulling very strongly.

Automotive: Auto remains strong. The forecast from customers for the coming six months is favourable in the passenger and commercial vehicles segments. "Overall, demand recovery is there and all our customers are pretty aggressive on their expansion plans, not only for domestic but also for the export market. The challenge in auto is the uncertainty related to the immobility. We expect a strong push from the segment of two- and three-wheelers," he informed.

Demand is not strong for two wheelers at present as they are overstocked. It is same for the farms and tractor segment. Except for these, other market segments are strong. "When we look ahead, there will be strong demand across all market segments," he stressed.

AM/NS India

At AM/NS India, the domestic:exports ratio is 80:20. In the 80% domestic share, the company is consistent and stable in certain market segments and, it feels, there is no reason to change this as it is a long-term view.

"There are some parts in our business where some market sentiments are speculative, and, when this happens, we are, of course, less consistent, switching volume time to time to the export market," Legrix said.

In the 20% exports share, Legrix informed that the company's first focus is Middle East.

"At AM/NS India, we are working towards our expansion plan. This will be functional by the end of 2024 or the beginning of 2025."

Outlook

Russia and Ukraine's events are having an indirect impact even on India, "which is difficult even for us to asses on our markets", he said.

However, Legrix said, he did not want to sound pessimistic. Despite the difficulties and uncertainties, "2022 should remain a year of growth for India. So even if there are some negatives, there are much more positives that we can work towards," he concluded.