Is China getting an edge over India in steel exports?

• Production glut, low demand, currency slide support Chinese exports
  
  
• Indian mills fall back on decent domestic demand
  
  
• Trend likely to continue into second half?
  
  

Morning Brief: In a significant twist in the tale, China seems to be having an edge over India in steel exports in the current calendar! Both countries are aggressive sellers in the lucrative overseas markets, with Indian mills allocating around 15% of their products for exports.

But data maintained with SteelMint reveals, China showed a substantial 28% increase over January-August, 2023 at 59 million tonnes (mnt) compared to 46 mnt seen in the same eight months in 2022.

India, on the other hand, witnessed a significant provisional over 25% decline in exports in this period. Its exports in January-August, 2023 were at 6 mnt compared to 8 mnt over January-August 2022.

Challenges and enablers

China's production glut, low demand drive exports: China was not very active in exports last year. Thus, India could divert a considerable volume into countries that China traditionally served - Southeast Asia, for instance. In 2023, however, the China story unfolded a little differently. Although it had officially pledged to defocus from commercial grades exports to value-added, high margin material, in reality, it could not afford to do so.

Its crude steel production has remained elevated for the better of this year, rising m-o-m, except in April and May (down -1.5% and -7.3% respectively), and over January-April (-0.8%). But, even in January-July, output was up 2.5% y-o-y.

On the other hand, domestic demand failed to pick up, after the property market collapse in 2021. Despite booster shots, the expected recovery has been rather tardy.

Thus, Chinese mills, faced with the triple whammy of production glut, low demand and squeezed margins, fell back on exports to keep the cash registers ringing.

Indian mills depend on decent domestic demand: Indian mills, meanwhile, maintained a stoic silence in the face of export challenges, falling back on domestic demand. With the national elections slated for 2024, the government is possibly giving infrastructure a big push, which has kept home demand buoyant.

Thus, data reveals, except for the European Union, India's steel exports to other countries it habitually sells to dropped y-o-y in January-July 2023. For instance, Indian mills had sold a substantial 0.52 mnt to Vietnam in this period in 2022 but saw a y-o-y drop of 52% this year till July.

Priced out? Another key factor that allowed China to lord over India in the exports arena was pricing. China's average hot rolled coil (HRC) export offers in January-August, 2023 have been at $613/tonne FOB, lower by $21/t against India's $634/t FOB.

China's FOB offers were comparatively lower in the same period in 2022 too, at $767/t against India's $786/t. Thus, Indian mills have been facing the price challenge from China for quite a while now.

As per some sources, China's cut-throat pricing edged out India from some of the markets and also helped the former to capture some comparatively newer ones, Middle East being one -- Chinese steel exports to the UAE rose a whopping 94% y-o-y in January-July, 2023. And, to Brazil by 96% y-o-y. Not only that, China even managed to land some material (around 1.30 mnt) on India's shores in this period, which were 74% up y-o-y!

China further cemented its place in countries where it has been traditionally strong - Vietnam, South Korea, Indonesia and others.

Currency conundrums: The Chinese RMB has slid around 6% against the dollar over January-August, 2023 as per data maintained with SteelMint. In August 2023, it touched 7.23 against January 2023's 6.79 to the dollar.

In comparison, the Indian rupee (INR) depreciated only by a little over 1% to the dollar till August. It ruled at 82.83 last month against 81.75 in January this year.

A weakened RMB has been supporting exporters, raking in more foreign exchange and offering yet another reason for ballooning Chinese steel exports.

Outlook

The China versus India exports story is likely to have a similar ending in 2023 as seen till August so far.

India: Indian mills are not too bothered since domestic demand continues to be decent.

As many as 106 big-ticket infrastructure projects of different ministries worth INR 11 lakh crore have been recommended for approval under the PM GatiShakti initiative so far this fiscal. These will transtate into significant steel demand. Moreover, with the festive season round the corner, Indian mills are bracing for a further upswing in domestic demand.

China: China's demand recovery, meanwhile, has not been up to expectations so far and thus exports may continue to remain a revenue-earning channel. As per some sources, output has been kept on the higher side, with an eye on exports. Plus, the yuan may not put up a brave show either.

But, on the flipside, China's HRC exports may lose ground in H2 because of a few reasons. One, global demand may become tepid in the remaining part of the year. Two, the narrowing spread between Chinese-origin HRCs and other competing countries' offers. Three, many mills may reduce output in H2 to comply with the diktat of keeping overall volumes same as last year's. This may support domestic Chinese prices.