India to end 2024 as net steel importer after 9-year gap. What lies ahead?

• Calendar may end with 10-mnt imports, 8-mnt exports
  
  
• Dumping by China, FTA countries a worrying factor
  
  
• Safeguard duty, expired BIS licences to stem inflow
  
  

Morning Brief: In what seems to be a throwback to the past, India is set to end calendar 2024 as a net importer of steel, reveals data maintained with BigMint.

The year 2015 was a watershed, in which India had exported 6.72 million tonnes (mnt) of steel (including stainless steel) but had imported a record 10.87 mnt.

Cut to 2024: India is slated to end the current calendar with exports of 8.40 mnt against 10.40-mnt of imports.

In fact, there are some similarities between 2015 and 2024. Both years saw aggressive dumping at predatory pricing by Chinese mills. In 2015, China's steel exports had touched an all-time high of 110 mnt, an increase of 21% against 2014 before declining to around 67 mnt in 2018.

At that juncture, the Indian government had imposed a series of safeguard measures to stem the imports flow in efforts to protect the Indian steel mills. These included a 20% duty rate on HRC products with retrospective effect from September 2015. Other measures had included a provisional anti-dumping duty on some products and a minimum import price of $341-$752/t, which was eventually phased out in 2017.

Factors influencing India's net steel importer status

Aggressive Chinese steel dumping: China has been aggressively dumping steel across the world at highly predatory price levels. The dumping is an off-shoot of several factors.

1) The fall in domestic demand with the collapse of the property construction sector, which contributes around 30% of the country's GDP. It contributed over 40% to the country's steel consumption but its share fell to 24% in 2023 and is expected to shrink to a mere 10% in 2024.

2) Steel overcapacity in the face of falling demand. China's crude steel production dipped 2.7% y-o-y over January-November 2024 but rose 2.5% y-o-y in November alone.

3) Squeezed margins and losses, because of the above two factors, have been forcing Chinese mills, saddled with excess inventory, to dump steel overseas at throwaway prices.

BIS licences trigger imports: Volumes from China increased just ahead of the expiry of some of the Bureau of Indian Standards (BIS) licences given to mills/exporters. These mills naturally wanted to make the most of the permits before their expiry. Chinese steel imports into India rose a whopping 98% over January-October, 2024.

Where Vietnam is concerned, India renewed the long-stuck BIS licence of Vietnamese steel major Formosa Ha Tinh in the first half of May this year, which had led to a spurt in imports from July. Renewal of these BIS certifications/licences had/have been held back by the Indian government since April-May of 2023, in a bid to lower cheap imports inroads. Vietnam has maintained a steady level of exports to India, punctuated by sharp spikes in November 2023 and August-September, taking advantage of its free trade agreement with India.

Imports from Japan 'worrying': Steel exports from Japan to India surged 119% in January-October, 2024. However, volumes from this Far-Eastern country has been quite substantial and steady m-o-m because of a few factors.

1) The country has taken advantage of the free trade agreement with India.

2) Japan is seeing a decline in domestic consumption amid a lull in its construction sector amid labour shortages, rising materials costs and new work hour regulations.

3) Machinery and engineering exports have declined because of global drop in demand for the same amid inflation, wars, and related factors.

4) Japan's auto production decelerated post-the safety test scandal at Toyota's small car unit, supporting the case for increased exports.

5) Volumes started escalating from June in particular, possibly because of some cargoes booked from Nippon Steel for AM/NS India.

During a recent webinar, Dr Aruna Sharma, Practitioner Development Economist and retired Secretary, Steel, Govt of India, told BigMint that rise of China and Japanese imports "is worrying".

Korean imports not a worrying factor: This East Asian country, like Japan, has been a consistent exporter to India. Its exports over January-October, 2024 rose 18% y-o-y but volumes played catch-up with China, at 2.36 mnt in these 10 months thanks to the FTAs with India. However, South Korea imports for further processing for their own plants in India, so it is not so much a worrying factor.

Imports offer pricing advantage: Landed imported prices have been consistently neck-and-neck and/or lower from domestic prices, offering some advantage to end-buyers. For instance, in FY'24, landed prices, in rupee parity, from China were at INR 56,417/t ($663/t) and from FTA countries, at INR 54,667/t ($642/t). In comparison, trade-level benchmark hot rolled coils, ex-Mumbai stood at INR 56,008/t ($658/t).

So far in FY'25, India's prices are at INR 50,510/t ($593/t). Chinese offers averaged INR 50,689/t ($595/t) and those from FTA countries, were at INR 49,011/t ($576/t). It may be mentioned, Chinese offers rose in Q3FY'25, post-the stimulus packages whereas Indian prices underwent corrections to counter the inventory pile-up.

But, a deeper month-wise look reveals, while FTA prices were consistently lower compared to domestic, Chinese offers slid below India's INR 51,740/t ($608/t) to INR 50,340/t ($591/t) over May-September, 2024.

Outlook

A provisional safeguard duty is expected soon, which will help to stem the imports inflow in the near-to-medium term. The government has already issued a notice for initiating the safeguard investigation by the Directorate General of Trade Remedies (DGTR).

Plus, a cache of BIS licences have expired for Indian and Vietnamese mills which are hanging fire. Currently, there are no active offers from Chinese mills in the Indian market, thanks to the above-mentioned red-tape. The BIS licence of China's Bengang Steel reportedly expired in early November. That of Baosteel Zhangjiang is slated to expire by end-January. Jiangyin Xing Cheng Special Steel Works has the leeway to export till October 2026 but its trade volume with India is negligible. That apart, no other Chinese mill is currently holding a valid BIS permit to export to India.

In Vietnam, except for Formosa, no other mill's licence has been renewed so far.