Indian steel exports stay flat in FY'24. Know why?

• Low global demand, Chinese offers key challenges
  
  
• Mills focus on higher domestic demand, realisations
  
  
• Global demand upturn may elude in near term
  
  

Morning Brief: India's steel exports were a bit of a no-show in financial year 2023-24 (FY'24). Volumes rose a marginal 1% to 8.82 million tonnes (mnt) against 8.75 mnt in FY'23, reveals data maintained with BigMint.

Commodity-wise break-up

Finished flats, which traditionally comprise the major portion of exports, hogged the limelight in FY'24 as well at 7.40 mnt, up 11% against 6.69 mnt in FY23. Flats had an overwhelming 84% share in the total volumes exported last fiscal.

Semi-finished (billets) dropped a steep 44% last fiscal to 0.79 mnt (1.40 mnt) while finished longs showed a minor 5% y-o-y drop to 0.63 mnt (0.66 mnt). Semis comprised a mere 9% and finished longs 7% of the total of 8.82 mnt.

Country-wise break-up

Europe continued to lead the exports charts in FY'24 with a 59% increase to 4.33 mnt (2.73 mnt) on the back of the quota fulfilment spree, despite the lukewarm demand from this geography.

Vietnam saw a steep 54% y-o-y drop to 0.40 mnt (0.88 mnt) as buyers here preferred cheaper Chinese imports.

Volumes to the US fell a significant 49% to 0.22 mnt (0.43 mnt) as this market is getting stifled by high interest rates.

Buyers in the UAE also preferred cheaper Chinese material, dragging down Indian imports 31% to 0.53 mnt (0.77 mnt).

Reasons behind marginal hike in exports last fisc

Export duty removal in Nov'22: It may be recalled, the Indian government, in a bid to cool down a heated up steel market, with the onset of the Russia-Ukraine war, had slapped an export duty on steel and iron ore. With effect from 22 May, 2022, a 15% ad valorem duty had been imposed on various alloy and non-alloy steels. The export duty on iron ore lumps with more than 58% Fe content was raised from 30% to 50% ad valorem. Further, an export duty of 50% was slapped on iron ore with Fe content below 58%; and 45% was imposed on pellets. The idea was to augment availability of raw materials to domestic mills and finished steel to end-users. In November, 2022, however, after the market had substantially cooled down, the government withdrew the export tax with an aim to provide a fillip to the domestic industry and also boost exports. As a result, exports rose somewhat y-o-y, feeding some pent-up demand from overseas.

Increase in India's crude steel production: India's domestic demand was better compared to the rest of the world in this period. As a result, over April 2023- March 2024, India's cumulative crude steel output registered a 12.9% y-o-y increase to 143.59 mnt against 127.18 mnt seen in FY'23. Thus, mills concentrated more on the domestic market, rather than exports.

Tepid global steel demand keeps prices subdued: Global demand for steel continued to be sluggish last fiscal with geo-political factors keeping energy prices and inflation high. Currency slides and high interest rates had a sustained negative impact on demand in most steel-consuming regions like Europe, Southeast Asia, South Asia, the US etc. These factors kept prices on a leash. For instance, Chinese export offers dropped from $703/t FOB in 2022 to $594/t in 2023. Japanese export prices climbed down from $710/t in 2022 to $615/t FOB in 2023. Russian FOB quotes dropped to $617/t in 2023 versus $700/t (2022). Indian offers likewise fell to $628/t (2023) against $712/t (2022).

China spoils India's exports party: China played a key role in suppressing Indian mills and traders' export opportunities with cut-throat pricing strategy. Its CNF offers to Vietnam dropped 12% to $583/t ($666/t in FY'23) in FY'24 against India's 9% drop to $605/t ($670/t in FY'23). Similarly, Chinese offers to the Middle East fell 15% to $602/t ($708/t in FY'23) dragging down Indian offers 12% to $635/t ($720/t in FY'23).

Higher domestic realisations: Domestic realisations, on the other hand, were higher compared to export offers. If Indian export offers averaged $596/t FOB last fiscal, then domestic realisations offered, in dollar parity, almost $672/t (INR 56,000/t) for benchmark HRCs) and $651/t for domestic rebars (INR 54,325/t), creating a stronger case for home focus.

Outlook

Demand in Europe, a key market for India, may not look up before the second half while buyers in the US are awaiting rate cuts. With the Red Sea crisis showing no signs of abating, supply disruptions are a headache, and exports are increasingly becoming localised. Thus, India may need to look at newer geographies. Plus, Chinese price volume and pressures may continue to bother Indian exporters.