India: Steel imports not a likely threat despite falling global prices

With global prices correcting downward sharply of late, the latest buzz is whether commercial grade hot rolled coil (HRC) imports into India will increase, this category having the highest volume share. There is enough curiosity essentially because landed prices of imports have decreased compared to the current domestic prices.

Why will imports not be a threat?

SteelMint's analysis reveals that, despite the global price drop, there is limited scope of import volumes rising in the short to medium term because of the following reasons:

• No immediate delivery from China: Import price falls have been the sharpest from China. Prices CIF India are at $845/t, having corrected by $100-150/t in the last few months. For instance, the landed costs of HRCs imported from China are lower by INR -2,620 per tonne (t) at INR 69,480/t compared to the domestic prices (ex-Mumbai) of INR 72,100/t minus the 18% GST. However, these will be Jan-Feb'22 shipments, even if the bookings take place now. SteelMint learns that traders would not be keen to take such a long position on deliveries.

  
  
  

• China may reduce exports: Export volumes from China may be reduced in the face of crashing prices since the government there is keen to replace commercial grade exports with value-added products. This may translate into lesser imports by Indian end-users.
  
  
• Japan, Korea prices high: The other two key importing markets for India are Japan and South Korea. However, prices have not corrected so strongly from these two origins because their domestic demand is high. For instance, the domestic share in HR sheets for Korean majors POSCO and Hyundai Steel has risen 9% to almost 68% in Oct'21 y-o-y, as per SteelDaily and is expected to rise further to 70% by end-CY'21. But, blast furnace maintenance at POSCO is expected tighten HRC supply within the domestic market which will keep prices firm.
  
  

Japan too is eying carbon emission reduction which may lead to production cuts. For instance, Nippon Steel's Q2 crude steel output has dipped as it eyes 30% reduction in carbon emissions by CY'30.

Thus, import prices from these two origins are at around $975/t CIF India. Landed prices, after various other costs added, are a tad higher by INR 2,340/t at INR 74,440/t vis-a-vis the domestic trade level prices.

Historically imports from Japan and Korea have been on the higher side thanks to the bilateral free trade agreements that did away with duties.

For instance, as per SteelMint's data, exports from Korea in CY'20 were the highest, at 1.78 mn t, with China at 0.57 mn t and Japan, at 0.51 mn t. Similarly, in Jan-Sept'21, Korea's was at 1.65 mn t, with Japan overtaking China (0.29 mn t) with 0.39 mn t.

Total steel imports into India over Jan-Sept'21 were up 13% to 3.10 mn t compared to 2.75 mn t in the same period in CY'20.

• Russian voyage time high: Russian import prices may be slightly competitive (at around $880/t in early November) but the voyage time is high at 45 days. Moreover, most mills do not have BIS certifications which are a cumbersome process aimed at discouraging imports.
  
  

Outlook

Domestic prices, after the recent hikes, may remain firm or head up since import scope is limited. A few mills are likely to undergo maintenance in December which may result in production loss and support the firm prices.

Thus, Indian mills are not likely to feel pressure from imports and prices will remain firm. Even if prices head south, there will not be a "steep correction", said a source.

However, if international prices continue to fall then the scenario may change, another source observed, adding, "Currently, this looks to be the inflexion point."