India's steel imports rise 34% in FY'24. How does short term look like?

• Good domestic demand, pricing support imports
  
  
• Japan enters third slot by nudging out Vietnam
  
  
• Volumes may drop amid govt support, elections
  
  

Morning Brief: India's steel imports have been grabbing considerable attention for the past one year or so because of their ensuing negative impact on domestic sales. Imports showed a healthy 34% increase to 9.33 million tonnes (mnt) in financial year 2023-24 (FY'24) against 6.94 mnt in FY'23, reveals data maintained with BigMint. Steel imports, it may be recalled, had hit a seven-year high in CY'23.

Korea, China and Japan were the top three exporting countries in FY'24.

Commodity-wise break-up

Finished flat steel imports were the highest, rising 29% in FY'24 to around 8.2 mnt (6.3 mnt in FY'23). Semi-finished imports rose manifold to 0.84 mnt (0.27 mnt), albeit on a low base, while finished longs dropped 4% to 0.33 mnt (0.35 mnt).

Country-wise break-up

South Korea was the largest importing country for Indian buyers, with volumes rising 11% to 2.75 mnt compared to 2.49 mnt in FY'23.

China followed with 2.50 mnt (1.55 mnt), showing a significant y-o-y rise of 60%.

Japan deposed Vietnam from the third slot (as seen in CY'23) with 1.18 mnt (0.83 mnt), recording a y-o-y increase of 42%.

Vietnam was an aggressive exporter to India, with its volumes rising a humongous 137% to 0.93 mnt (0.39 mnt).

Korea, Japan and Vietnam have been actively exporting steels to India by virtue of the various preferential trade agreements inked.

Reasons for high imports

High domestic demand within India: India showed healthy demand. JPC data reveals, India's steel consumption rose over 13% to 136 mnt in FY'24 compared to 120 mnt in the previous year.

Rains were sporadic and even deficient in certain regions, keeping steel procurements firm. The project segment did some decent buying. The government's strong infrastructure push helped. The second half of the year, especially in the post-rains period, saw some healthy booking volumes.

Demand for flats was good, especially from the PEB and fabrication segments.

A portion of this domestic demand was met through imports, essentially because of the cost viability factor.

Cost viability factor: Imported steel was cheaper compared to domestic. BigMint data reveals that the average landed prices of hot rolled coils (HRCs) from free trade agreement (FTA) countries were lower by over INR 1,800/t ($22/t). If average prices of HRCs (IS2062, 2.5-8mm) ex-Mumbai in FY'24 were at INR 56,008/t ($671/t) then landed prices from FTA countries were at INR 54,170/t ($649/t).

Chinese landed prices were even lower (by 7%) at INR 52,283/t ($626/t). Naturally, Indian end-buyers gravitated toward the lower-priced material. Challenged by dwindling steel demand at home, China became extremely aggressive in dumping its steel cheap across the world and India too was on its radar.

Vietnam becomes aggressive exporter: Vietnam became aggressive in exports, facilitated by the Asean-India Free Trade Area to which it is a signatory. Several reasons propelled exports. One, weak domestic demand and high production costs forced mills to reduce production.

According to Vietnam Steel Association data, production of all types of steel fell 7% in 2023 and sales dropped over 5%, within which domestic consumption fell 16%. A sluggish realty sector, and limited bank credit squeezed margins. Thus, Vietnam eyed exports, which grew 29% y-o-y, to offload excess inventory, mainly of HRCs.

Secondly, Vietnam was forced to explore newer geographies as Europe, where it was a large exporter of value-added flats, showed weak appetite. From mid-2023, exports to the EU faced two barriers in particular -- safeguard measures, and CBAM issues.

Thirdly, a decline in consumption in Southeast Asia--which was traditionally its largest overseas market-made it aggressively scout for alternate geographies like the US, and, of course, India.

South Korea exports rise amid higher supply: This East Asian country had reasons to increase exports. One, it witnessed 1.3% higher crude steel production in 2023. Two, its home demand and prices dropped as the real estate sector experienced a slowdown. Three, its mills, already saddled with excess material, grappled with rising raw material costs and a flood of cheaper steel imports. These factors colluded to make South Korea hunt for alternative markets and India, being geographically viable, was in focus.

Japan eyes India as exports to China fall: Japan's domestic steel consumption dipped 2.6% in 2023, building a stronger case for exports. Exports of steel and related products (including pig iron and semis) rose a marginal 1.2% last calendar to 33 mnt, as per preliminary data from the Japan Iron & Steel Federation. Shipments to China fell a considerable 28% to just 2.85 mnt, which could be another reason why Japanese mills eyed Indian buyers aggressively.

Outlook

India's finished steel imports may decline further as the government is proactively trying to protect the domestic industry by not renewing the BIS certification for exporting countries. JPC data shows March imports were down 32% m-o-m. Moreover, no fresh import bookings were seen since late last year.

Secondly, India's demand in the short term may wane considering the elections and liquidity issues ahead.