India: Export tax, war spin-offs drag down steel exports over 40% in CY'22

• Top importers MEA, EU, SEA show decline
  
  
• Nepal sees rise in domestic melting capacities
  
  
• Turkey earthquake may bolster export opportunities of Indian mills
  
  

Morning Brief: India's steel exports showed a steep 44% drop to 10.37 million tonnes (mnt) in 2022 against 18.50 mnt seen in 2021, reveals SteelMint data.

All the three top importing geographies - Middle East & Africa, Europe and Southeast Asia - showed a y-o-y drop.

Factors that pulled down exports

• Obviously, the 15% export tax imposition from the third week of May 2022 had a deep impact on overseas sales by Indian mills.
  
  
• Global demand scenario was tepid. Europe was in the throes of a severe energy inflation which led to a sheer drop in end-user demand.
  
  

Region-wise break-up

1. Middle East & Africa (MEA): This region emerged the highest importer in the period under review at 3.28 mnt, showing a slight drop of 7% from 3.54 mnt in the preceding year. India's tier-1 mills, hamstrung by the export tax and overall low demand, had resorted to boron-added hot rolled coils (HRCs) exports post-May to the Middle East, although these eventually found few takers here. Moreover, Indian mills had to compete with China's aggressive pricing in this market.

Middle East and Africa as a geography has been experiencing extensive infrastructure development but is mainly dependent on imports since it does not have too many indigenous mills producing flat products. "Also, there are no restrictions on imports while oil-based economies are doing well," a source informed SteelMint.

2. European Union (EU): The Continent was the second-highest importer in 2022, but saw a steep 43% drop in volumes from India y-o-y to 2.83 mnt against almost 5 mnt seen in the year before. Europe was not traditionally a huge buyer of Indian-made steel. But, during Covid's first wave in 2020, when other steel-exporting countries were struggling, Indian mills made hay while the sun shone, finding a good market in Europe. Since then, the trend continued. But, last year, thanks to the onset of the Russia-Ukraine war, and its spin-off effects, Europe was hugely constrained by high energy prices and the inflation that ensued. As a result, end-user industries went slow in procuring. Indian mills, meanwhile, found it tough to find buyers for its boron-added material in Europe too. Europe is predominantly a flat steel exports market and more than 60% of India's steel exports comprise the same. Consequently, the flats segment was dealt a body blow.

3. Southeast Asia (SEA): This region saw the third-highest export volumes entering its shores from India. However, levels dropped the sharpest, by 49% y-o-y to 1.77 mnt against 3.43 mnt registered in 2021. Vietnam traditionally enjoys the highest share of India's exports amongst Southeast Asian countries. Last year, however, the country underwent many challenges. A Covid resurgence dented domestic demand. That apart, slow infra development impacted consumption in a market where the main contributors to sales are construction steel and HRCs.

Domestic crude steel production was down y-o-y to 16 mnt in 2022 against 23 mnt in the preceding year, but Vietnam's largest mill, Hoa Phat, sold more than 7 mnt in 2022, a y-o-y dip of a mere 7%. With home demand down, most mills were forced to turn exporters. Formosa, another prominent domestic mill, also became more active in exports.

4. South Asia: The region saw a 51% y-o-y drop to 1.32 mnt (2.68 mnt in 2021). Nepal which usually buys longs, especially billets, saw a 50% drop as its own melting capacities are being spruced up.

Outlook
Turkey's earthquake could be having some far-reaching impact on Indian steel exports as mills there are finding it difficult to export. As per reports, large mills in southern Turkey are expected to remain shut for weeks, with production facilities idled. That apart, high energy costs and scrap prices are increasing production costs, making it a double whammy for Turkish mills. Turkey is a major supplier of flats to Europe, a market which could swing towards Indian steel makers in the short-to-medium term.