Post the removal of export curbs, Indian steel makers have been looking to capitalise on the demand revival in automotive, consumer durables and real estate to push sales. However, their exuberance was short-lived, it seems, as they are now faced with a new headache: increasing imports of low-priced steel.
That is cutting into their domestic market shares and dampening profitability prospects. This will adversely affect their capex plans at a time India’s manufacturing sector is not doing well. Gross value added (GVA) in manufacturing contracted 4.3 percent (YoY) in the July-September quarter, and the near-term outlook doesn’t look promising amid a worsening global macroeconomic environment that will cap exports.
Amid monetary tightening by major central banks to rein in inflation, and slowing GDP growth in most of the developed world and China, the largest steel consumer globally, the demand outlook for this key industrial input remains bearish. To offset lower exports to Europe and the US, steel manufacturers from Japan, South Korea and Vietnam are offloading their excess output in relatively better-performing markets such as India, often at whatever prices they can fetch.
No wonder, the landed cost of benchmark hot rolled coil (HRC) of Japanese origin is Rs 48,000 a tonne when domestic HRC prices are hovering around Rs 56,000 a tonne, leading to a loss of market for competing Indian manufacturers. The average capacity utilisation in the country’s steel sector was 78 percent in FY 2021/22. However, due to increased imports amid muted domestic and global demand, capacity utilisation has been falling and may fall further if the problem of cheaper imports is not dealt with effectively.