India becomes net steel importer for three months in a row in Nov. What lies ahead?

• Price viability lures end-users to import aggressively
  
  
• China, EU factors keep export volumes, offers down
  
  
• Bullish trends likely in short-to-medium term
  
  

Morning Brief: India has become a net steel importer for the third month in a row in November, reveals data maintained with SteelMint. Import volumes have been overtaking exports since September, 2023, when these were at 0.57 million tonnes (mnt) against 0.54 mnt of exports. October saw imports spurting to 0.73 mnt against 0.40 mnt of exports. November imports touched 0.7 mnt, riding past 0.36 mnt of exports.

On the other hand, data reveals an overall y-o-y downtrend in January-November 2023 in exports volumes. To illustrate the downswing, export volumes, which have a direct correlation with prices, were down 25% in the first 11 months of this year, recording an average 0.67 mnt against 0.89 mnt in January-November 2022.

India's HRC export offers averaged $627/t FOB east coast of India in January-November 2023, falling 14% y-o-y against $725/t in January-November, 2022. Similarly, average domestic trade-level HRC prices, ex-Mumbai, fell but a lesser 10% in this period to INR 57,600/t ($691/t) over January-November, 2023 compared to INR 63,372/t ($761/t) in the same period last year.

Imports, on the other hand, have shown an uptrend, expectedly influencing domestic prices downward. Average volumes rose to 0.53 mnt (0.39 mnt) in this period, up 36% y-o-y.

What were the market influencers?

The China factor: A key reason for the downtrend in exports lay in China's aggressive overseas sales throughout this year, to offset the losses mills were incurring from the low demand at home. Customs data reveals China's steel exports over January-October added up to a chunky 74 million tonnes, averaging 7.55 mnt against India's mere 0.71 mnt! China captured a traditional Indian export destination like Vietnam as well as an emerging one like the Middle East with rock-bottom offers that were not possible for Indian mills to match- a trend that ultimately drove the latter to withdraw from floating any offers in October-November.

Indian mills tried to match China's offers but up to a point- from $860/t FOB in 2021, to $712/t in 2022, to as low as around $630/t this year. With the continuous downtrend in offers in a dried-up market, Indian mills obviously started having lesser allocations for exports.

EU demand down: In a double whammy, Indian mills also suffered from lack of demand from the European Union, which had emerged as a lucrative destination during the Covid-era. The Russia-Ukraine war in February last year led to spiraling energy prices and inflation, reducing global demand sharply. From $832/t CNF Antwerp in 2022, Indian offers dropped to $729/t levels in 2023, and yet found no takers.

Good domestic demand, robust supply: Since exports comprise 10-15% of Indian steel sales, a decline here means the same volume gets diverted to the domestic market and starts impacting prices. The market was characterized by a scenario where the trade segment nursed inventories procured earlier. There was robust supply (and not much of exports!) which put pressure on prices, especially longs. Production over April-September, 2023 was up 13% y-o-y. In fact, over June-August, prices fell because of inventory pressures which forced mills to opt for maintenance. Mills were more focused on B2B and B2C sales since the infra segment was active thanks to the government's push to the same.

But, even if domestic prices did fall y-o-y in these 11 months, the decline was lesser than that of export offers because of the domestic demand support.

Imports pressure down prices: These have an inverse correlation with domestic prices. The higher the import volume in a month, the greater the downward pressure on prices. Over January-April, mills watched and waited. But when imports showed resilience, rising consistently from May, domestic prices started declining too. Prices have not been able to return to their INR 60,000/t ($720/t) levels since the last eight months as imports expanded to touch 0.70 mnt levels in the last couple of months.

Price viability: Imports also gained momentum because of the price viability. Over June-November, landed indicative prices from FTA countries have been consistently lower compared to trade-level ex-Mumbai prices. In October, import offers were lower by well over INR 3,000/t ($36/t).

Outlook

Will exports rebound early next year? Will Q4, the peak demand season, live up to its expectations? Are imports receding?

Exports may pick up after a protracted dull spell, thanks to the winter restocking in Europe. Global demand too may uptrend as macro-economic factors look supportive amid a shortage in domestic supply in the EU. India's domestic demand also spells hope because Q4 sees concerted infra push as project deadlines near.

Imports may slow down as the government is becoming stricter on steel imports through non-tax barriers. The latest circular informs that all consignments coming in without BIS certification will have to approach the ministry for clarification as to whether these will be allowed entry or not.

2nd India Steel and Metal Conference: Keeping above factors in mind, SteelMint, along with the Steel Users Federation of India, will be organizing the 2nd India Steel and Metal Conference: Supply Chain & Sourcing Strategies, over 10-11 January, 2024 in Mumbai. This is the only conference focusing on steel end-user industries and their issues. It will be followed by the SUFI Steel Awards, 2023. Register fast to avail of special offers.