How will CY22 end for India's steel and raw material segments?

• Iron ore & pellets exports seen falling the most this year
  
  
• Steel exports to experience significant y-o-y decline
  
  
• Ferrous scrap imports to more than double in current year
  
  

Morning Brief: How did India's steel and raw materials perform in calendar 2022? Provisional data collated by SteelMint forecasts that amongst the key segments, iron ore and pellet exports are likely to fall the most y-o-y. This will be followed by the steep decline in steel exports. On the other hand, imports of ferrous scrap are seen skyrocketing. Both iron ore and steel imports will also show an uptrend while crude steel production is set to show a nominal y-o-y growth. SteelMint explores:

Steel

Exports: Steel exports will register a steep almost 45% decline to 10 million tonnes (mnt) by the end of 2022 against 18.50 mnt seen in 2021.

The reasons are not far to seek. The export, duty, global slowdown in demand, Southeast Asia's lack of appetite for both flats and longs will all contribute to the dismal export performance in the current year.

Imports: Steel imports, on the other hand, are seen rising over 21% to 4.80 mnt this calendar against last year's 3.94 mnt. Imports, mainly from Japan and Vietnam, started gaining traction since August and have bothered mills although these were booked in not very large volumes. Price viability was an important factor that encouraged imports since many say the quality of the hot rolled coils that arrived from offshore were not of very high quality. Landed prices turned out to be INR 5,000-7,000/t cheaper compared to domestic.

Moreover, the depreciating currency was an equally important factor here that made exports highly lucrative and perhaps impelled higher allocations from the overseas mills. However, India's steel import volumes are seen tapering off from early next year since the cargoes already booked will be shipped in December-January. Not many shipments have been heard of post-January.

Crude steel

Production: India's crude steel production is likely to end 2022 with a nominal 6% increase in volume to 124.27 mnt as against 117.63 mnt in 2021. But this increase would be better than what all other steel producing countries can score this year - most will end in negative territory. India, in 2022, was still better insulated that other countries in terms of demand, supply and energy tariffs with its accent on infrastructure, especially with the general elections slotted in 2024.

Iron ore & pellets

Exports: Iron ore and pellets exports are seen plunging 58% to 15.70 mnt this year against 37.10 mnt in 2021. Iron ore exports on a standalone basis are slated to drop 68.40% to a mere 8.64 mnt this year against 26.80 mnt recorded last year. Pellets exports too are expected to fall a significant 30% to 7.21 mnt in 2022 as against 10.31 mnt last year.

Iron ore and pellet exports were badly hit post the imposition of the restructured export duty on 22 May. The export duty on iron ore lumps with more than Fe58% content was raised from 30% to 50% ad valorem while a duty of 50% was imposed on iron ore below Fe58%, and 45% on iron ore pellets.

Imports: Iron ore and pellet imports, on the flipside, will end with an increase. Iron ore imports, look to end the year up by 29% to 1.50 mnt compared to 1.20 mnt in 2021. The push has been in the form of the drop in global iron ore prices which had encouraged imports of concentrates and lumps. Global fines prices fell to around $80/t in end-October from a high of $163/t in March.

Production: The country's iron ore production will likely remain flat y-o-y in 2022. Volumes, as per data, may be at 245.90 mnt against 246.30 mnt last year. The reasons can be attributed to the prohibitive export tax on iron ore and pellets which had immediately put a brake on overseas dispatches. Secondly, in a knee-jerk reaction to the duty, output dropped from Odisha - India's largest iron ore producing state, and to a lesser extent, from Karnataka whose output dipped immediately after the apex court order lifting curbs on exports. Thirdly, the 15% export duty on finished steel led to intermittent production cuts and lesser lifting of ore which translated into lesser production.

Ferrous scrap

Imports: In a surprising development, India's ferrous scrap imports are seen more than doubling to 7.60 mnt in 2022 compared to 3.80 mnt with which 2021 ended. Several reasons conjoined to pump up the volumes. One, Turkiye, the largest scrap importer, became absent for an extended period in the second half of the current calendar due to a drop in crude steel production amid various reasons. These included a steep hike in power tariffs and drop in demand from Europe - where it supplied finished products. Two, South Asian buyers Pakistan and Bangladesh were challenged by low steel demand, a depreciated currency, natural disasters and limits on LC opening issues in Bangladesh in particular to stem the drain on foreign exchange. As a result, both countries became inactive in trade. Desperate suppliers, saddled with inventory meant for Turkiye and South Asia, turned to India and sold cheap. Moreover, there was a scarcity in domestic scrap generation which supported the imports.

Coking coal

Imports: Coking coal imports are seen ending the year on a flat note, at 55.70 mnt against 55.60 mnt last year. Imports were hemmed in by certain factors. One was the tepid-to-moderate domestic demand throughout the year which led to lower offtake of the fuel by the mills. Secondly, the steel export tax aggravated the inventory scenario since domestic demand in India is not enough to absorb the 20-odd mnt of exports allocations. This led to intermittent production cuts and naturally lesser usage of coking coal. Thirdly, Indian mills preferred cheaper Chinese met coke this year, which also translated into lesser coking coal usage. Fourth, prices had skyrocketed around March-May, which led to lower imports in the second half of the year. Lastly, reimposition of the import duties of 5% on met coke and 2.5% on coking coal in November made the materials slightly costlier. All the above factors are seen keeping imports on an even keel this year.

Currency slide

The global currency slide just after the outbreak of the Russia-Ukraine war had major ramifications globally. The Indian rupee (INR) would possibly lose around 6% in 2022 against the dollar as per SteelMint data. On an annual average basis, the INR slid from 73.9 in 2021 to 78.5 (taking a 20-day average in December) this calendar. The depreciation stemmed from the repeated rake hikes effected by the US central bank - the Federal Reserve - in a bid to strengthen the dollar to curb inflation. Other central banks followed suit. The inflation was fuelled by record high energy and gas prices in Europe this year. The depreciated INR made imports across-the-board costlier.