India's steel exports fall 36% in Q1FY'25; short term looks challenging

• Higher Chinese export allocations hit Indian mills
  
  
• Lower production from India drags down volumes
  
  
• Quotas exhausted for some items, Jun bookings scant
  
  

Morning Brief: India's steel exports fell a sharp 36% to less than 1.5 million tonnes (mnt) in the first quarter (April-June) of financial year 2024-25 (Q1FY'25), reveals data maintained with BigMint. Volumes in the same period in Q1FY'24 were at 2.35 mnt.

For the first half of the calendar year (H1CY'24), however exports dipped a much lesser 4% to around 4.50 mnt against 4.70 mnt in H1CY'23.

Factors dragging down India's steel exports

Higher Chinese allocations, aggressive pricing: Chinese exports increased which had a direct fallout on Indian overseas sales. This was essentially because China targeted those destinations which were key markets of Indian mills-Vietnam, Middle East, Turkiye etc. Chinese mills were under pressure to allocate higher volumes for overseas sales because of the persistently low home demand which was a fallout of the realty sector crash a few years back.

Data maintained with BigMint reveals that China's steel exports in Q2CY'24, which corresponds with India's Q1FY'25, because of the above factors, rose nearly 16% to 28 mnt from 24 mnt seen in the same period in the previous year.

Naturally, pricing became a key tool for capturing overseas markets. Chinese CNF offers to the key Indian export destinations of Vietnam and the Middle East were lower in Q1FY'25 compared to their Indian counterparts. For instance, Chinese offers to Vietnam in Q1 averaged $555/t CNF Ho Chi Minh City against the Indians $570/t CNF HCMC, slightly lower by $15/t.

Similarly, for the Middle East, Chinese quotes averaged $568/t CNF Abu Dhabi while Indian offers were at $600/t CNF Jebal Ali. China has been aggressively exporting steel across the globe on the back of subdued home demand for months now, especially after its real estate sector collapsed a few years ago.

Indian mills' maintenance schedules lead to lesser export allocations: Under regular circumstances, Indian mills keep a certain portion of the production for exports. However, since the export market failed to perform well, mills were forced to opt for unplanned maintenance shutdowns which effectively translated into production cuts. Dull domestic demand also failed to support production, giving mills reasons to opt for output cuts.

But, despite the poor response from exports markets, mills were still able to maintain their offers at levels higher than China's essentially because they kept their production low in Q1.

Because of the production cuts, they left the export market in May-June.

JPC data shows that India's crude steel production in Q1FY'25 rose a slower 4.6% to 36.61 mnt compared to 35 mnt in Q1FY'24. Consumption, on the other hand, raced up 16% to 35.42 mnt (30.83 mnt), corroborating the production cuts.

JSW Steel and Tata Steel together saw a q-o-q drop of 0.57 mnt in their crude steel production in Q1.

Q4FY'24 hectic domestic buying eases export pressure: Some hectic end-year and pre-poll domestic buying were seen especially around March, which translated into higher number of orders which spilled over into Q1. This allowed mills a breather from exports in Q1, bringing down the overall numbers.

Outlook

The safeguard duty rate remains at 25% for imports into the EU above quota levels. For India, the quarterly hot-rolled coil and strip quota for July-September 2024 and October-December 2024 are 301,704 tonnes (t) each and for January-March 2025 and April-June 2025 are 295,145t and 298,424t, respectively.

Since India has already fulfilled in certain categories, next quarter can see its exports either remaining at current levels or even falling further.

Lack of bookings from Europe for June corroborates this fact. Nor have there been any substantial deals struck for any other geography.

Quotas introduced in FY24 have remained at the same levels.