Indian steel exports hit new high in July; but mills now defer shipments

Indian steel exports continued on an upswing m-o-m,touching a record 2.44 mn t in July, 2020, which is 7.5% higher over 2.27 mn t in June, 2020, according to data maintained by SteelMint.

Overall, from Apr-Jul, 2020,steel exports touched 7.8 mn t against 2.89 mn t in the same first four months of 2019-20, a whopping 169% rise y-o-y. Export volumes were at 5.36 mn t over April-June, 2020.

However, interestingly, mills are now delaying their shipments. As per sources, some large private sector mills along with two large steel PSUs have delayed their export dispatches by around a month. All the bookings being deferred, it seems, were done in June for July and August shipments. But, now, mills are asking for July shipments to be shifted to August, August shipments to be pushed back to September and September's to be deferred to October.

Domestic demand and prices

And the only reason behind this delay in shipments is that domestic demand is getting stronger, insist sources. Prices have also gone up twice in the last one month in the domestic market, making it more lucrative. The mills are getting better prices compared to what they are fetching through exports. In fact, mills are earning INR 4,000-5,000/t more in the domestic market at present, it is learnt.

Export prices have gone up too at present to over $ 500/t FoB across ports on the east and west coasts of India compared to say $430/t FoB in Jul. But exports do not look so attractive going forward because, one, some of the export orders have been booked
at $500-plus prices and which will need to be serviced in September.

Two, the scenario is not such that mills will be able to sell across buyers. On the other hand, they can sell at say INR 38,500/t delivered to all the buyers in the domestic market. After deducting around INR 2,500 /t freight rate in domestic sector, if the mills sell even at say INR 34,000-35,000/t to some of their best customers, this amount would be their net realization ex-plant.

"The idea is to delay exports and use their resources to make quickly for the domestic market to earn their realizations faster can make a difference to their second quarter ending. They can average it out and get better price realizations. The Q2 results can look brighter," said a source.

Thirdly, HRC sourcing countries like Korea, Japan and others are all offering at $ 500 or more FoB. Chinese mills are offering at over $520 FoB and above. Steel players in these countries can afford to do so because their domestic markets are looking up, putting them in a position to raise their export prices. And India is no exception. Indian steelmakers are aware that buyers with whom they have export contracts, will not cancel the orders or back out, even if shipments are delayed, because they know they cannot get the material at the prices at which they had concluded these deals earlier, at around $ 430/tonne FoB.

"On an average the price increase in domestic and exports markets is almost USD 50-60 per tonne so the overseas buyers will accept the delay in shipments since they are getting that price advantage," said a source.

Continuation of June trend
Analysts SteelMint spoke to stress that July exports are a continuation of the June trend and that shipments which were supposed to happen in June got pushed back to July. And that JSW Steel, with 5.55 lakh tonnes, led the exports brigade. "JSW Steel had a sizeable contribution to the July steel exports figures. Their shipments which were supposed to have happened in June got carried forward to July because of the COVID-19 infection and subsequent quarantines at the plant in the previous month," said a source.

Record billets exports

And the cherry on the cake was billets exports, which crossed 1 mn t in Jul'20, an all-time high, against 0.82 mn t in June, up around 28% m-o-m. Of course, May had been a very good month for billets exports too, touching 0.99 mn t, since the country then was still in the throes of the lock-down and mills were desperate to keep their cash registers ringing, what with domestic demand at almost nil around then.

Billets will find their usage eventually in wire rods, rebars, angles, and channels. Giving reasons behind the high billets exports in July, a source said that the industry had been bracing for a lean domestic demand period in July and August, both months being part of the monsoon season and this year being made worse by the lockdown. Hence, the source said, the mills had pre-planned to book large volumes of billets export consignments in July.

"July and August were just post-lock-down and there is no construction during the rainy season. So July shipments had been planned from before," said a source.

But sources said that, henceforth, the industry is not likely to see such high billets exports. In fact, there is limited allocation in billets from mills like RINL, JSW, SAIL and others.

Finished longs
Finished longs were, however, down by around 35% to 0.13 mn t in July 2020 against 0.20 mn t in the previous month. The reason for this is demand for rebars increasing in the domestic market. Longs comprise mainly of wire rods and TMT bars. India is not self sufficient in wire rods production and so whatever is manufactured at home is sold to the domestic market, leaving little else for exports. The scenario is similar with TMTs.

Outlook
Going forward, exports prices in September-October are likely to remain elevated but whether deals will be struck at these levels will remain to be seen. The obvious reason is that domestic markets across South Asian economies like Thailand, Indonesia, the Philippines etc are looking up. Moreover, China has stopped exports to feed its domestic demand. Such a scenario bodes well for Indian steel makers, opening up home-grown demand opportunities. Thus, exports do look less attractive under such circumstances

November onwards, winter sets in in China when the country usually goes in for production cuts due to environmental reasons, which can goad it to look at imports. But, at the same time, if steel consuming industries close down during winter then China would look to export too. So, it all depends on China's own economy.