India's steel exports fall 30% in Jan-Jul; A lot hinging on China in H2

• Domestic demand decent, supports lower exports
  
  
• Value-added exports rise, lead to lower HRC allocations
  
  
• China lures away key markets with attractive offers
  
  

Morning Brief: India's steel exports dropped a sharp almost 30% in January-July, 2023 to 5.50 million tonnes (mnt) against a more robust 7.58 mnt recorded in the same seven months of 2022, reveals provisional data maintained with SteelMint.

On a m-o-m basis, however, July 2023 exports rose a healthy 34% to 0.79 mnt compared to 0.59 mnt in June.

Indian mills, on average exported 0.78 mnt of finished steel and billets in January-July, 2023 compared to 1.08 mnt in the same period last calendar.

Product-wise break-up

Flats: Data reveals, flat steel exports were down 13% to 4.51 mnt in these first seven months against 5.19 mnt seen in the same period in 2022 Within flats, the segment that leads, hot rolled coils (HRCs), showed a 26% y-o-y drop to 2.25 mnt against 3.04 mnt recorded in the corresponding period last year.

Galvanized exports, however, went against the grain, registering a 38% increase to 0.96 mnt compared to 0.69 mnt in the period under review.

Longs: This segment plunged 61% to around 0.36 mnt (0.92 mnt).

Billets: Billet exports also plunged 57% to 0.63 mnt (1.46 mnt).

Factors that pulled down exports over Jan-Jul'23

Domestic demand good: India's domestic demand has been moderately good, allowing for an increase in crude steel production by 7.4% over January-June, 2023. Next calendar, being an election year, a slew of infra project have been announced these last few years, which have kept demand supported.

HRCs diverted towards producing value-added flats: The bulk of flat products exported in the last seven months comprised downstream items like galvanised, as data reveals. On the other hand, exports of HRCs, a raw material for upstream items, saw a slide. This proves Indian mills diverted most of the domestic HRCs towards the manufacture of upstream, value-added finished items which command a higher margin in international markets. Many tier-1 producers either started their own downstream facilities or went for a synergistic acquisition of standalone merchants rolling mills for producing value-added steel. As a result, most mills had lesser volumes of HRCs to allocate towards overseas sales in the last many months.

Thus, exports to the European Union rose 28% in these first seven months, mainly on account of the higher exports of galvanised and other value-added flats in an otherwise dull trade scenario.

Vietnam demand falls: A few factors worked against Indian mills here. One, with scant HRCs available, exports to Vietnam fell drastically to 0.25 mnt (0.52 mnt) in the period under review. Secondly, China offered lower and took away a huge chunk of this market. Thirdly, Vietnam's demand declined -- its own finished steel production fell 21% in January-June, 2023.

Semi-finished exports plunge: Semi-finished sales fell drastically in the face of active trade from the Southeast Asian and Turkish sellers. With the lira having lost almost 69% to the dollar since the beginning of this calendar, exports became a viable option for Tukish sellers. Secondly, India's buyers were predominantly Southeast Asians who are now preferring cheaper domestic material. Lastly, Nepal, which was also a key buyer, stopped buying billets in lieu of sponge iron, as a cheaper option. Thus, India saw its billets exports go into a freefall.

Long story cut short: Exports of Indian long steel plunged 61% amid a sharply weakened export demand. Globally, demand for longs is down because of high interest rates that are impacting housing demand. Plus, Asia, where longs are exported, is already facing a glut of material from China, Malaysia, Indonesia and Gulf countries where mills have built up sufficient capacity. Now, in an aggressive stance, they are offloading material overseas cheaper compared to those from the Indians.

China lures away buyers with lower offers: China played a crucial role in India's reduced exports scenario. With the yuan (RMB) recently dropping to its lowest of 7.1550 to the dollar since November 2022, Chinese exports have become more lucrative. The double whammy of higher volumes at attractive offers helped China lure Vietnam and Middle East buyers away from Indian mills.

Outlook

China's expected production cuts have not yet been officially announced. If these do happen, Indian mills stand to benefit. If not, then China may continue to export at around 7 mnt per month in the second half of 2023, a scenario that will keep both Indian export volumes and prices under pressure.