How are Indian steel prices correlated with export volumes?

• Indian domestic steel prices highly correlated with export volumes
  
  
• Indian mills have about 10-15% exposure in the global market
  
  
• Rising imports also impact domestic prices
  
  

Morning Brief: A strong correlation between India's steel exports and prices can be extrapolated from data collated by SteelMint.

Exports influence Indian steel prices hugely, since these comprise 10-15% of India's total steel production, which denotes a significant exposure to global markets.

Data reveals that the export and price graphs have been moving more or less in tandem. For instance, export volumes had risen steadily from January-March, 2022. Prices too climbed up m-o-m in these three months. To be more specific, exports were at 1.09 million tonnes in January 2022.

Benchmark trade-level hot rolled coil prices in that month had hovered at around INR 64,025/tonne. February and March volumes touched 1.32 mnt and 1.54 mnt respectively with prices steadily upping m-o-m to INR 66,325/t and INR 73,520/t in these two months.

Recent influencing factors on exports

Importantly, it may be noted that exports are implicitly influenced by geo-political and economic factors.

Russia-Ukraine war: For example, Russia declared war on Ukraine in the third week of February, 2022, which drastically changed trade flows with the Western world moving in quickly with sanctions on Russia. Europe, the largest buyer of Russian steel and other commodities, soon turned to India to do some panic buying over April-May, 2022. This immediately boosted India's steel exports in March last year and kept the volumes quite buoyant over April-May at 1.04 mnt and 1.11 mnt respectively. In these three months, benchmark HRC prices climbed to some of their highest levels in the last 18 months to INR 73,520/t in March 2022 (as already mentioned), peaked to INR 76,025/t in April, 2022 and then subsided to INR 69,825/t in May, 2022.

Export tax: The over INR 6,000/t m-o-m drop in May 2022, can be attributed to the sudden 15% duty slapped by the Indian government on Indian steel exports in an attempt to reign in ballooning prices.

Thus, if steel exports averaged 1.16 mnt in January-June, 2022 (H1CY2022), then they dwindled to 0.56 mnt in July-December, 2022 half (H2CY22). Prices too correspondingly averaged INR 68,613/t in H1 and INR 56,565/t in H2.

Russia-Vietnam become active sellers: Even within H2, some months were very bleak for exports, especially October-November, 2022 when volumes plunged to a mere 0.43 mnt each because of hectic bookings done by Russia and Vietnam. Indian prices, which had started a steady m-o-m decline after hitting the peak in April 2022, also scraped INR 56,000/t levels, and with a slight lag, reaching their 18-month low in December, at INR 53,950/t.

Export levy lifted, quota conundrum: However, in an interesting twist, defying all global odds, Indian exports started rising from December 2022-January 2023. The reasons are two-pronged. One is that the export tax was lifted in the third week of November, 2022, making mills scurry to secure bookings. Two, in a corollary to that, mills also became busy in filling up their quotas to Europe. Consequently, volumes rose m-o-m in January 2023 to 0.68 mnt from 0.55 mnt in December 2022. Prices too rose m-o-m to INR 57,850/t in January against INR 53,950/t in the preceding month. Exports remained firm at around 0.68 mnt over January-February, 2023. So did prices. In fact, they rose m-o-m by over INR 1,700/t in February this year. And as mills sought to fill up pending quotas, exports rose to over 1 mnt in March, pulling up prices in tandem to INR 60,260/t in this month.

But, volumes are subsiding now, because, overall, global demand is not picking up. Thus, we have seen prices correcting too. June 2023 exports dropped to 0.54 mnt, dragging down prices to INR 55,000/t levels.

Imports

Imports too have a correlation with prices but an inverse one. Data shows that whenever imports have increased, domestic prices have come under pressure although these movements are not so short and jerky as with exports.

For instance, the firm prices over January-May, 2022 led buyers towards cheaper imports, with volumes rising steadily from the previous 0.30 mnt levels to peaking at 0.65 mnt in December 2022. In-between imports caused enough worries, hovering at a consistent over 45 mnt till November. Mills, already hit by low export opportunities in these months, had no choice but to lower their prices from the peak seen in April to an 18-month low in December last year.

Imports dropped off from their peak level from February onwards, giving mills some breather to raise prices. Thus, when imports showed a significant 24% m-o-m drop in February 2023, prices were hiked to INR 59,000-60,000/t levels till April this year.

However, prices are a function of both exports and imports. Hence, at times when exports are not supportive, offers fall even if there are no immediate import threats.

As it happened over April-June this year. Exports slid m-o-m. But imports too were sluggish at 0.33-0.44 mnt. Yet, prices fell steadily over March-June.

Outlook

Exports may see some traction in July as mills rushed to fulfil their pending Europe quotas over April-June.

Plus, it is expected that China's production cuts will have a beneficial impact on India in H2. Markets which may not be served by China - as it strengthens its focus on the domestic market - can turn to India for sourcing. Pre-empting this trend, Indian flat steel prices have shown some resilience in the past couple of weeks.