India's steel exports drop 15% y-o-y in Apr-Oct'23; outlook dull
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*Exports of steel flats down 4%, share of coated products surges
*Longs, semis shipments fall sharply on weak construction sector demand
*Competitive Chinese offers, weakening global demand impact exports
Morning Brief: India's steel exports fell by about 15% y-o-y in April-October 2023 (7MFY'24) to around 4.63 million tonnes (mnt) compared with 5.41 mnt in the corresponding period of last fiscal, provisional data available with SteelMint show.
Exports fell on weak global demand but also stronger domestic steel prices and consumption rising by 14-15% y-o-y, as per Ministry of Steel data. The drop in export volumes on a y-o-y comparison is surprising given that the domestic steel industry was impacted by the 15% export duty during much of H1 of last fiscal.
Commodity-wise exports
Finished flat products of steel, accounting for the bulk of India's total exports, decreased by around 4% y-o-y to 3.76 mnt. Exports of hot rolled coil (HRC) and plate stood at around 1.63 mnt during the period.
Notably, exports of galvanized and coated products increased to 0.87 mnt compared with 0.35 mnt - up nearly 150% y-o-y. Of course, value-added products fetch higher prices and so the trend of commodities exports has shifted to more of mother products such as HRC being increasingly used up for manufacturing of value-added products rather than being simply exported.
On the other hand, exports of semi-finished steel such as billets dropped a sharp 52% y-o-y to 0.5 mnt, while shipments of long products such as rebar, wires and structures stood at 0.37 mnt in 7MFY'24 - a decrease of 20% y-o-y.
Global demand for longs is highly muted with construction and housing still a subdued area. This is because of high interest rates and its impact on consumer demand. India is facing competition from cheaper products originating from African countries like Egypt, Algeria and the GCC. China's increased exports at highly competitive prices are a key factor, too.
Top export destinations
India's exports to the EU, the largest export destination, were assessed at 1.98 mnt during the period under review, an increase of 36% y-o-y. This is explained by the fact that steel import quotas of the EU were getting used up during the period even as demand in the EU remains dull. WSA has forecasted a 5.1% decline in the EU's steel demand in 2023.
While shipments to Nepal fell by 4% y-o-y in 7MFY'24 to 0.5 mnt, exports to the UAE and Vietnam dropped sharply by 36% and 72%, respectively.
Factors impacting exports
*Domestic demand strong, prices higher: Indian mills have kept export offers on hold for flat steel products from mid-September on lower export realisations and robust domestic demand. SteelMint data show domestic HRC prices averaged INR 57,100/t ($688/t) over April-September 2023. On the other hand, Indian mills' export offers averaged a far lower $597/t FOB, in H1FY24, amid subdued global demand, creating a good case for the domestic market. Commencement of new infrastructure projects ahead of General Elections next year and uptick in automotive sales have kept domestic demand elevated.
*Chinese steel floods market: The sharp rise in Chinese steel exports, which increased by around 35% y-o-y till October this year, has kept steel production in that country supported amid a general decline in steel demand, especially from the property sector. However, this is a throwback to the pre-pandemic era when Chinese steel glutted the global market and prices remained subdued as a result. Data reveal that Chinese HRC export offers dropped from $636/t FOB Rizhao at the beginning of 2023 to $540/t FOB in October 2023, a sharp decrease of $96/t. This is despite the fact that the Chinese RMB has weakened around 6% against the USD since the beginning of the year, making exports more profitable. Indian exporters, not in a position to match cheap Chinese offers, have seen shipments to Asia and the Middle East declining.
*Dull global demand: Tightening of monetary policies in a bid to tackle global inflation has kept steel demand low, especially in the advanced economies such as the EU. Despite the easing of supply chain bottlenecks, the manufacturing sector continues to slow under weakening demand. The consumer durables sector has been particularly affected due to inflation. Weakening of construction sector sentiments because of high interest rates has weakened demand in India's top export geographies such as Vietnam, although Chinese competition has been the biggest hurdle here, too. So, exports remained low.
Outlook
Mills are likely to keep offers on hold till the first week of November, sources inform. Therefore, November shipments will be low. Domestic steel demand has maintained a growth rate of 15% y-o-y and overseas demand remains weak. So, the outlook on steel exports is dull in the near term.
Chinese economic stimulus may trigger a gradual stabilisation in the property sector and demand recovery. If this does not materialise, higher exports by China will make it increasingly difficult for Indian mills. Growing domestic steel capacities in Vietnam and the Middle East amid weak demand and competitive Chinese prices also point to a weak export outlook for Indian mills.
