India's H1 steel exports fall 15% on stronger domestic consumption, global demand weakness

• Cheaper Chinese quotes a stiff competition
  
  
• Mills focus on domestic allocations amid maintenance schedules
  
  
• Short term looks bleak amid geopolitical uncertainty
  
  

Morning Brief: India's steel exports dropped nearly 15% in the first six months (April-September, 2023) of the current financial year of 2023-24 to 4.23 million tonnes (mnt) against 4.99 mnt recorded in the same six months of FY2023, reveals provisional data maintained with SteelMint.

On a m-o-m basis, September 2023 exports were at 0.51 mnt, provisionally down 12% compared to 0.58 mnt in August. On calendar basis, exports over January-September 2023 were down 26% to 6.6 mnt against 8.93 mnt recorded in the same period in 2022.

Product-wise break-up

Flats: Data reveals, flat steel exports dropped 4% to 3.40 mnt in these first six months of FY24 against 3.55 mnt seen in the same period in FY23.

The most exported products in the flats category, hot rolled coils (HRCs), saw a 22% decline to 1.57 mnt in this period compared to 1.29 mnt in the same period last fiscal. This was mainly because mills diverted their HRCs in-house towards production of galvanized and other value-added products, whose exports are more lucrative.

As a corollary to the above factor, galvanized exports registered a whopping 124% increase to 0.77 mnt compared to 0.34 mnt in the period under review.

Longs: This segment dropped a sharp 26% to around 0.32 mnt (0.43 mnt). Overall, the global demand for longs is highly muted with construction and housing still a subdued area. Plus, India is facing competition from cheaper products being offered by certain African countries like Egypt, Algeria and the GCC. That apart, China's increased exports at rock-bottom prices are snuffing out competition.

Billets: Billet exports plunged 56% to 0.44 mnt (1 mnt). Billets too are facing a similar fate as rebars. With finished demand slow, semis like billets are seeing very little exports activity.

Factors that dragged down exports in Apr-Sep'23

Domestic demand decent, prices more lucrative: The government, it may be recalled, had imposed a sudden 15% export duty on steel exports but had revoked the same after six months in November, 2022. It was expected that exports would pick up once the duty was revoked. However, other factors kept the volumes low. One was the decent domestic demand pull, especially when prices were on the lower side. During that period, projects and trade segment buyers had done enough re-stocking. For instance, benchmark rebar prices had fallen to INR 53,600/t (minus 18% GST) in June 2023 from INR 63,000/t in February. Thereafter, these fell further to INR 51,100/t in July-August. HRCs did not show such sharp price swings, but still touched INR 55,500/t in June-July, offering buyers scope to stock up.

HRC domestic prices averaged, INR 57,100/t ($688/t), over April-September (H1FY24). On the other hand, Indian mills' export offers averaged a far lower $597/t FOB, in H1FY24, amid damp global demand, obviously creating a good case for the domestic market.

Next calendar, being an election year, a slew of infra projects has been announced in the recent past while more are on the anvil. As recently as September, six infra projects on roads and railways, worth INR 52,000 crore, have been recommended for approval under the PM Gati Shakti initiative.

That apart, automotive demand is showing a slight recovery, if compared to the pre-Covid benchmarks. SIAM data shows auto production has remained well over 20 lakh units per month and passenger car sales have been improving almost m-o-m since April.

Competitive offers from China dent Indian opportunities: Chinese HRC export offers dropped from $636/t FOB Rizhao at the beginning of 2023 to $540/t FOB Rizhao in October 2023, a sharp decrease of $96/t. This is despite the fact that the Chinese RMB has weakened around 6% against the US dollar since the beginning of the year, making exports more profitable. However, even at lower prices, Chinese mills are still making money on exports.

China has been very aggressive on the exports front since its own crude steel production has been high almost m-o-m except in April and May. According to the National Bureau of Statistics, China's crude steel output over January-August, 2023 was at 710 mnt, up 2.6% y-o-y, while domestic demand has been highly dull, forcing mills to look at exports aggressively at rock-bottom offers.

Indian mills lower export allocations amid maintenance schedules: Indian mills lowered export allocations amidst production issues. In fact, with the monsoon kicking in from June onwards, many mills opted for maintenance shutdowns through this period, which led to production cuts. With the scarce inventories at their disposal, mills focused more on domestic allocations rather than exports. Crude steel production showed a slight dip 11.21 mnt in June against 11.9 mnt in Aug'23 and 11.17 mnt in May.

Longs, semis lose export markets to competitors: Longs and semis exports or seaborne trade from blast furnace (BF) mills were lesser because of a stronger focus on higher domestic realisations. Only exports to Nepal were active and slightly higher at 0.50 mnt against 0.54 mnt in the period under review. That apart, the market has been taken away by new kids on the block from northern Africa. India's longs buyers were mainly in Southeast Asia, who started preferring cheaper Chinese material.

Country-wise break-up

Volumes to Vietnam, Middle East plunge: Exports to Vietnam plunged 69% y-o-y to 0.16 mnt in H1FY24 (against 0.52 mnt in H1FY23). Buyers here preferred Chinese and domestic materials which were cheaper. Chinese offers fell off from $700/t levels in April to $570/t in the third week of September.

Exports to the Middle East fell a steep 45% y-o-y in H1 to 0.24 mnt (0.44 mnt).

Exports to EU rise, as quotas get fulfilled: Exports to Europe rose 33% to 1.87 mnt (1.38 mnt) in April-September. The market overall was dull and possibly the quotas were being fulfilled. The EU also went into summer vacation mode, a period when procurement slows down.

Outlook

India's steel exports may remain subdued in the short term as global demand is subdued. The entire world is on tenterhooks and wondering if the Israel-Palestine conflict will escalate. In such an event, global demand may further go haywire if inflation rears its head afresh.