India's steel exports drop over 30% in Jan-Jun; China factor may be crucial in H2

• Quotas boost EU volumes but actual demand weak
  
  
• Vietnam, Middle East prefer cheaper Chinese material
  
  
• China's 'flat control' policy may drive some markets towards India
  
  

Morning Brief: India's steel exports fell a sharp over 30% in January-June, 2023 to 4.74 million tonnes (mnt) against a far more robust 6.70 mnt recorded in the same six months or first half (H1) of 2022, reveals provisional data maintained with SteelMint.

On a m-o-m basis too, June 2023 exports dropped 22% to 0.63 mnt compared to 0.81 mnt in May.

Indian mills, on average exported 0.79 mnt of finished long steel and billets over H12023, compared to 2.1 mnt in the same period last calendar.

Product-wise break-up

Flats: Flat steel exports were down 17% to 3.95 mnt in H12023 against 4.78 mnt in H12022. However, the segment that leads flats, namely hot rolled coils and plates, moved in a narrow range in H1, with a lower cumulative volume of 1.95 mnt against 2.98 mnt seen in H12022 as domestic demand increased. That apart, Indian mills have reduced allocations for HRCs, diverting these instead towards the downstream plants they acquired in the last few years.

In tandem, galvanized exports showed a sharp increase since beginning of the calendar. At 0.83 mnt in H12023, these rose 24% from 0.67 mnt in H12022 as mills now have more value-added for exports. Plus, these seem to be more in demand as countries globally focus on pulling up economies through vehicle sales and infra construction, two key areas where galvanized finds application.

Longs: However, longs exports plunged 66% in H1 to around 0.30 mnt (0.86 mnt in H12022). Mills concentrated more on home demand which was moderate against overseas. Export offers too had declined, making these sales unviable.

Billets: H1 billet exports this year plunged to 0.49 mnt against 1.33 mnt in H1 last year mainly because of the decline in procurement from Nepal.

Region-wise exports

European Union volumes reflect earlier bookings: Exports to this region leads with a sizeable 2.19 mnt whereas volumes for the entire 2022 were at 2.43 mnt. This is because of a key factor. EU quotas have a July-June cycle. If exporting countries are unable to fulfil their quota in a particular quarter, they can export the unexhausted amount in the residual or last quarter (April-June). India had slapped an export duty over May-November, 2022 which limited Indian mills from fulfilling their EU quotas from July-November, 2022. When this levy was lifted, Indian mills rushed to fill this gap which boosted their export volumes to the EU in H1.

But, overall, since actual EU demand in H1 was subdued. Data maintained with SteelMint shows that EU steel imports continued to slow down in Q12023 (January-March). Quotas for most products and origins were filled up slowly, with substantial volumes left unused. In the coated segment, there was strong demand for plates from India (97% of category 4A), but HRC imports were weak. India's quota in HRCs was utilised only 30% and 23% in CRCs.

Vietnamese prefer cheaper Chinese material: Demand from Vietnam was almost nil for the better part of H1. From 0.49 mnt in H12022, these plunged to 0.20 mnt in H12023 as Vietnamese buyers preferred cheaper material from China. It may be recalled, China's domestic demand was highly subdued in H1 and mills became rather active in exports in this period. They needed to sell cheap overseas to capture volumes and offset their losses. China's average HRC export offers in June dropped to $554/t FOB compared to India's $568/t FOB. China's average HRC offers in H1 ruled at $629/t FOB against India's $655/t FOB. As a result, Chinese exports over January-May were up 41%. Indian mills refrained from selling to the Vietnamese at such unviable rates.

Nepal looks to cut down import dependency: Exports to Nepal, which comprise predominantly longs (and metallics), slid 25% to 0.48 mnt (0.64 mnt) in this period. Nepal is struggling with its own challenges of currency slide and clamp-down on fresh letters of credit to stem foreign exchange outflow. The country is also staring down at slowed economic growth in H1FY23 and encouraging production and consumption of domestically manufactured finished products.

UAE lured by China's cheap offers: This market did buy in the initial part of the year. However, as the months wore on, and China's offers steadily declined, buyers found the dragon country's offers more suited to their pocket. Hence, exports from India declined 34% to 0.35 mnt (0.53 mnt) in this period. That apart, the Eid festivals also kept demand subdued for some time in this region.

Outlook

Exports to the EU will likely be lower in the second half (H2) because of sluggish demand -- the unfinished quotas being a proof of this trend.

However, China may play a role in upping India's exports in H2, especially to price-sensitive geographies like Southeast Asia and Middle East, which have been markedly served by it in H1. If China's "flat control" policy gets implemented in H2 then its exports will probably drop in the remaining part of the year while offers may rise on the back of production cuts and measures to boost demand. This will allow mills there to focus on the home market and reduce export allocations, a factor that will become advantageous for Indian mills. Southeast Asia and Middle East may look at India to fill in China's gap.

That apart, the Chinese currency's movement may also determine its steel exports. The yuan (RMB) depreciated around 7% since the beginning of the year. However, it has begun appreciating and may remain firm in H2, which may also make exports less attractive for the mills -- another beneficial factor for Indian mills.