India's wire rod exports plunge 70% in Jan-Jun'23; outlook a bit uncertain

• Nepal's demand slides drastically on LC issues
  
  
• Domestic prices drop amid lower export demand
  
  
• Global supply-demand imbalance casts shadow on near term
  
  

Morning Brief: India's wire rods exports plunged almost 70% to a provisional 0.13 million tonnes (mnt) in the first six months (January-June) of calendar 2023 (H1CY'23). The volume in the same period in 2022 was at 0.43 mnt.

Reasons for the fall in volumes

Demand from Nepal slides: Nepal has been a leading importer of India's wire rods. However, data reveals that from a level of 0.26 mnt in 2021, these fell to around a mere 82,000 tonnes (t) in 2022. However, till May 2023, volumes have touched over 76,000 t.

The reason for Nepal's slowing imports of this material lies in the LC issues in the face of dwindling foreign reserves and inflation. For the first time in 60 years, Nepal plunged into recession in the mid-October 2022 to mid-January 2023 period. Economic growth data revealed that the country performed in the negative in the second quarter, which was triggered by slowed trade and a deceleration of the construction and mining sectors. The first quarter (mid-July to mid-October, 2022) grew a mere 1.7% y-o-y but was lower than the preceding quarter.

The inflation rate in 2023 is expected to touch 7% compared to the previous year. According to Nepal Rastra Bank, the country's central bank, the y-o-y consumer price inflation rose to 7.44 percent in mid-March compared to 7.14 percent a year ago. Some cite this as hyper-inflation, rising from an already elevated base.

As a result, banks have been discouraging traders from opening letters of credit (LCs).

Southeast buys more from Malaysia & Indonesia: Southeast Asia is a key wire rods importing country but its volumes have fallen drastically since the last couple of years. This region is procuring more from Malaysia and Indonesia because of price viability and lesser voyage time. For instance, Taiwan imported almost 0.20 mnt in 2021 from India. However, exports dwindled to a mere 16,000 t in 2022 and 6,000 t over January-May, 2023. Overall demand from Southeast Asia is also down.

Drop in global demand: Overall, steel demand has become rather subdued after the frenetic restocking that had taken place around March-April, 2022, in the immediate aftermath of the onset of the Russia-Ukraine war . However, soon after, there was a drop in demand and which has persisted till now.

Production

India's wire rods production is provisionally at 3.39 mnt till June 2023. Last year, the output was at 6.37 mnt, a 5% drop over 6.69 mnt recorded in 2021.

Prices

Thanks to the decrease in exports, prices of wire rods were impacted too. Blast furnace-route wire rod prices, ex-Jharkhand basis, fell by INR 4,900/t to INR 51,800/t in June 2023 as against INR 56,700/t in January this year. Similarly, induction furnace-route wire rod prices dropped by INR 4,000/t to INR 47,400/t in June as against INR 51,500/t in January.

Outlook

With global demand overall still subdued, wire rod exports may not pick up in the near future. There is already a supply-demand imbalance in the global long products market. The baggage of reduced production in 2022 has got carried over into 2023 and most mills are vying for domestic orders. As a result, the scope of exports has shrunk enormously.

Despite some positives, such as falling energy prices, globally markets are unstable, with an unsatisfactory outlook for the next quarter.

Nepal slid into recession this year, as per recent quarterly data and it has little control over this development since it is an import-dependent country. Its inflation rose over 7.4% y-o-y and the country earlier this year said is economic growth rate in the current fiscal would be a mere 2.16%.