Indian steel exports drop to 6-month low in May'24. CY'24 outlook remains dim

• Exports to the EU drop 40% m-o-m in May
  
  
• EU's 'other country' TRQ cap to impact Indian exporters
  
  
• Prospects subdued amid sharp rise in Chinese exports
  
  

Morning Brief: India's exports of steel in May 2024 were recorded at-0.5 million tonnes (mnt), a decrease of nearly 30% m-o-m from around 0.66 mnt in April, as per provisional data available with BigMint. Export shipments dropped to the lowest level in six months.

Commodity-wise break-up

Data reveals that the share of flat steel exports comprised around 82% of total exports, with volumes of HRC, galvanized strips and pipes and tubes making up for the greater part of shipments.

On the other hand, exports of finished long steel products and semis stood at roughly 50,000 t and 40,000 t, respectively in the month under review.

Top export destinations

The EU remained India's top export destination, with total shipments exceeding 210,000 t in May, although exports to this geography fell by around 40% m-o-m.

While volumes to Nepal and the US increased m-o-m, the UAE and Turkiye witnessed lower shipments, with Vietnam accounting for just around 600 t, marginally higher m-o-m.

Why are exports under pressure?

• Limited allocations, higher domestic realisations: Indian steel mills are prioritising the domestic market over exports and have limited export allocations. In addition, realisations in the domestic market are higher compared to exports.
  
  
• Maintenance downtimes: Planned maintenance shutdowns at Indian mills, particularly hot strip mills (HSMs), have halted HRC export offers to Southeast Asia and the Middle East (ME). These shutdowns, lasting around 15 days for some mills, were strategically timed to coincide with a period of low buying interest in both domestic and international markets.
  
  
• Weak global sentiments: A slowdown in global demand for steel also impacted Indian exports. The ongoing geopolitical issues in the Middle East, a key export destination, have impacted demand for steel, while buyers in the EU, another major importer of Indian flat steel, are cautious due to safeguard measures which have dampened demand.
  
  
• Competitive Chinese prices: Chinese prices remained competitive in the global market despite a slight increase in HRC prices. China's HRC export offers in May stood at around $542/t FOB against $537/t FOB in April. In the absence of strong competition from other exporters, China was able to raise prices while still attracting some business in the Middle East, according to sources. This price advantage made it more difficult for Indian exporters to compete effectively.
  
  

Outlook

Indian mills export offers have resurfaced in Europe after over a month's hiatus. However, no deal was heard concluded. Buyers are cautious as the European Commission has proposed to extend the EU safeguard measure on steel by a further two years to 30 June 2026. It will introduce a 15% cap per origin over the "other country" tariff-rate quota (TRQ) for HRC.

Due to the EU's import surge in this category (30% market share in 2023), the HRC other country TRQ has been consistently exhausted on the first day of the quarter for several consecutive quarters. The 15% cap will ensure that import penetration on the first day of the quarter would be limited. This is likely to impact Indian exporters, although unlikely to lead to a drop in overall non-tariff export volumes to the EU.

On the other hand, market sentiments in the Middle East, too, are expected to remain slow due to the Eid holidays. Among the other traditional export destinations, Southeast Asian countries, especially Vietnam, are increasing domestic capacity which will result in reduced imports. Indonesia, too, is on a capacity building spree that is likely to lead to higher steel exports from that country. China's significant presence in the ME and SE Asia is also a challenge for Indian mills.

In January-May 2024, Chinese companies have increased steel exports by around 25% y-o-y to 45 mnt amid weak domestic demand and volumes may touch 100 mnt in 2024. So, Indian steel export sentiments in the current year are likely to remain subdued.