India: Steel industry's H1FY'25 performance a mixed bag. H2 may fare better

• Crude steel output, consumption up
  
  
• Exports drop sharply, imports surge
  
  
• Cautious optimism forecasted for H2
  
  

Morning Brief: The Indian steel industry put up a mixed show in the first half of financial year 2024-25 (H1FY'25). While crude steel production grew under 5% on the back of a slightly modest 13% growth in consumption, exports and imports both were pain areas. So were prices. BigMint goes behind the scene:

Crude steel output up slightly amid callibrations: India's crude steel production provisionally rose a modest 3.6% to 73 million tonnes (mnt) in H1 against 70 mnt in H1FY'24. Mills operated at almost full capacity but did undertake intermittent production cuts to balance out demand-supply dynamics. For instance, production cuts undertaken in January-February 2024 helped to keep supply at rational levels till April. The restocking thereafter gave support to production. Some continued with the shutdown of their hot strip and cold rolling mills. Many took maintenance ahead of monsoon, the usual period for such moves. In the second quarter, some units resumed, but the smaller ones continued to calibrate production in a market challenged by rains and slack demand.

India's steel production, resultantly, rose almost 5% to 71 mnt against 67 mnt seen in the same period last fiscal.

Consumption beset by challenges: Steel consumption rose around 13% in H1 to 73 mnt (64 mnt). However, this was a tricky area, beset with the challenges of slack home demand, higher imports and lower exports. Till April there was pre-election lull amid liquidity issues, followed by some hectic restocking immediately ahead of the polls.

However, consumption ended H1 in the positive zone because of a few factors. One, end-users primarily did need-based procurement and secondly, the lower prices encouraged sales. Notably, buyers procured in small parcels, waiting to take advantage of the expected prices falls. "Buyers bought in batches, waiting for prices to fall further," observed a source.

Secondly, some uptick in demand started emerging from the end of H1 in the form of private infra projects, which bolstered mills' order books.

On the downside, sources inform, orders from government projects have slowed down significantly. Their take is that government funds are now increasingly being channelled into public welfare measures ahead of various approaching state elections. Rebars, particularly, are currently nursing a huge backlog in government projects. "The government, at present, is not spending on projects as it was doing previously. The pace of funds being released is very slow," said a source. Secondly, the monsoon, which was rather intense this year, further made the government cautious on infra spending.

Thirdly, in automotive, although overall H1 production and sales were up around 12%, commercial vehicle sales fell more than 4% while passenger vehicle sales, a key component of the market, remained almost static y-o-y, as evinced from SIAM data.

China, dumping probes impact exports: Indian mills' exports in H1 declined a significant 42% to around less than 3 mnt (5mnt). The reasons were many. One was, of course, the predatory pricing from China that forced them to exit the market from May to only return from end-September onwards. For instance, Chinese offers to Vietnam averaged $528/t CNF HCMC, whereas Indian offers remained at $567/t CNF HCMC before mills exited the market. Similarly, for Middle East, Indian offers were resolute at $600/t CNF Jebel Ali whereas Chinese stole the show with $545/t CNF Abu Dhabi.

Secondly, the production callibrations (and also the unviable offers) impelled Indian mills to keep lesser allocations for exports which also dragged down volumes.

Lastly, anti-dumping probes from EU, Vietnam, Malaysia are on where India, along with China and other countries are under the scanner. Turkiye, meanwhile, has already imposed heavy duties on some steel imports from China, Russia, India and Japan that range from 6.10-43.31% of cost, insurance and freight.

Imports ride predatory pricing, declined global prices: In a disturbing trend, India's steel imports rose a significant over 51% to 5.4 mnt in H1FY'25 from 3.6 mnt in H1FY'24. India remained a net steel importer in this period, continuing with a trend actually started in April-June, 2024.

Two major factors encouraged imports. One was, of course, the dumping at predatory pricing. For instance, domestic trade-level HRC prices, ex-Mumbai, averaged INR 52,033/t ($619/t) in H1FY'25 whereas landed prices from China in this period were lower by INR 1,316/t ($16/t) at INR 50,717/t ($603/t). Worse, landed prices from FTA countries (Vietnam, Japan and Korea) in H1 averaged INR 2,316/t ($28/t) lower at INR 49,717/t ($591/t), pushing Indian mills on the backfoot.

Secondly, globally prices downtrend in this period. For instance, Chinese HRC offers fell 12% y-o-y in April-September 2024 while Japanese ones declined 10%. Vietnam's Hoa Phat's offers declined 20% from January 2024 till September and Formosa's by 22% in this time frame. This trend kept import offers highly competitive.

Prices fall as mills fight back: The India Steel Composite Index lost 6% y-o-y in H1, dragging prices to near-four year lows because similar levels were last seen in late 2020-early 2021, when the pandemic was starting to grip the globe.

Mills, buffeted by dull home demand, falling exports and surging imports were fighting with their back to the wall. Macro factors were not supportive either. India's GDP growth in the first quarter of fiscal year 2024-2025 (April-June 2024) was 6.7% y-o-y. This was the slowest growth in five quarters.

Outlook

In a cautiously optimistic stance, many feel, the second half (October 2024-March 2025) may fare better in terms of domestic demand but, warn, a sharp increase in prices may ricochet in the form of resurging imports. "It would be wiser to increase prices at a slower pace since value-added demand within India is good," reasoned a source.

Meanwhile, the government is trying to slow the pace of imports through strategies like NOCs only for steels not produced within India.

Many feel India should now focus on high-margin value-added steel in the next phase for exports, moving away from commercial grades. A few mills are also taking steps in this direction by sprucing up their value-added manufacturing space.