India's steel exports drop over 40% in CY22, but outlook bullish

• 15% duty, global demand slump drag down volumes
  
  
• Nepal plagued by depleting forex reserves
  
  
• Exports seen increasing in short-to-medium term
  
  

Morning Brief: India's steel exports in calendar year 2022 (CY22) touched 10.45 million tonnes (mnt), a significant drop of 43% over 18.50 mnt recorded in CY21.
In December, 2022, exports totalled 0.66 mnt, a drop of 40% against 1.09 mnt seen in the same month in the previous year.

The December volumes, however, were m-o-m up 53% compared to 0.43 mnt in November, 2022.

Reasons for the poor exports show

1. Export tax impact: The sudden imposition of the 15% export tax on finished steel items from 22 May, 2022, had a major impact on India's steel industry. The tax was imposed by the government with the intention to tame inflationary pressures. Exports plunged in the immediate aftermath as mills went into a huddle to figure out how to work around the tax. Boron-added hot rolled coils were offered but had poor acceptability in the global market and for the next many months only previous bookings got shipped. As a result, volumes to even the UAE, where demand was decent due to post-Covid infrastructure development, fell 18% y-o-y. However, the tax was withdrawn as suddenly as it was imposed, in the third week of November last year which helped to boost December volumes slightly.
But, it may be mentioned, India's domestic demand was good enough to absorb the 6% y-o-y rise in crude steel production and 8 mnt that did not get diverted as exports, in 2022.

2. Drop in global demand: Before the world could emerge from the Omicron wave of the pandemic that hit from late 2021, Russia declared war on Ukraine on 24 February last year. Western sanctions on Russia and subsequent energy politics took a toll on energy supply trends and prices. As crude oil, natural gas and coal prices soared, inflationary pressures gripped most parts of the world, and particularly Europe, with the threat of a recession looming large. Demand for steel dropped sharply which also acted as a roadblock to overseas sales for Indian mills and exporters.

As a result, the global steel trade dropped 15% last year, reveals SteelMint data. Soon, export shipments from Russia, Ukraine, Turkiye, Vietnam and also India fell. Indian mills' supplies to the European Union (EU) declined 42% in CY22 to 2.54 mnt compared to a far more robust 4.36 mnt in CY21.

3. Vietnam loses import appetite: Vietnam was among the top three steel importers from India in CY21. However, the following year, its volumes declined 28% to 1.16 mnt against 1.61 mnt in 2021. This Southeast Asian country not only experienced a slow recovery from Covid but the war took its toll too. Vietnam is known to procure steel from India, value add to it and export to the EU. However, with demand in this geography down last year because of record high energy prices and inflationary spin-offs, Vietnam lost a good share of overseas sales. Hence, it turned into an exporter itself and even managed to sell some parcels of HRCs to India last year at highly competitive prices!

4. LC issues plague Nepal: Nepal had been the second-highest importer in 2021, after the EU. Last year, its procurements from India plunged 50% to 1.02 mnt against 2.02 mnt in CY21. As with many other Asian countries, Nepal too has been challenged by a sliding currency, draining foreign exchange reserves which, in turn, made it difficult for importers to open fresh letters of credit (LC) last year. Ballooning imports against the backdrop of a sliding currency led to forex depletion, pushing the balance of payments into the red.

Outlook
India's steel exports are seen increasing in the short to medium term. The global and domestic outlook on demand and prices is cautiously positive with gas and energy prices easing although these are nowhere near pre-war levels. EU buyers are back with restocking intentions and this trend is likely to sustain for some time, which is a positive indication for Indian mills.