Moneycontrol Pro Panorama | Are Chinese imports a threat to Indian steelmakers?

Even flat steel consumption — used in automobiles and durables — is up, an indicator of improved demand conditions from these sectors.

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There is growing concern about a sharp increase in steel imports from China, with the government keeping a close watch, according to a Reuters report seen on Moneycontrol. April-July saw a sharp increase in imports from China, up by 62 percent over a year ago. China’s slowing economy, particularly its property sector’s woes, is likely to have led to higher exports to take care of surplus output.

However, India’s steel imports from all countries rose by a much lower yet healthy level of 23 percent during this period. Therefore, China has been taking share from other countries. But surprisingly, India’s steel exports have been falling since April and in April-July 2023, having fallen by 0.3 percent. We have turned a net importer in FY24 so far, compared to full FY23 when we were a net exporter, and that’s despite the impact of the export duty imposed between May-November 2022.

Why are steel exports flagging? One obvious reason could be weaker demand in importing countries due to slowing economic growth while another could be rival China’s higher appetite for exports. International steel prices have been on a declining trend in FY24. Still, for Indian steel producers, exports act as a balancing mechanism, where companies may not earn as much profits as on domestic sales, but they help achieve optimal utilisation levels and keep a check on excess supply.

But steel companies may also be more focussed on the domestic market because of India’s steel consumption, which is in rude health. In July, steel consumption rose by a massive 13.6 percent over a year ago, on the heels of an equally impressive 16.7 percent increase in June, according to CMIE data. These are typically lean months due to the monsoon, but dry spells in the current season could have helped demand. The government’s capex thrust, and now with reports that private capex too is stepping up, may also be contributing to higher steel demand. Even flat steel consumption — used in automobiles and durables — is up, an indicator of improved demand conditions from these sectors.

India’s flat steel prices have risen for the ninth successive week while long steel prices are up for the third time in August 2023, according to an ICICI Securities note. Compared to three months ago, steel prices in India are down by 1 percent while the prices are down by 10.3 percent in Europe, 17 percent in the US, 9.7 percent in South Korea and 5 percent in the CIS. India has done relatively much better. China is among the few countries to have seen its domestic prices increase. India’s domestic steel prices are expected to remain firm, according to the note, due to supportive conditions, such as dry weather conditions, pre-election construction activity and maintenance shutdowns by mills.

While India’s steel production too has risen, it is not to the same extent as what’s visible on the consumption front. That may explain why domestic prices are holding steady and why companies also don’t see the need to step up exports. When higher margin domestic sales are growing, why export at a lower margin.

The question that then arises is, if the domestic steel price outlook is looking up, are imports from China really a big threat? For now, it does not seem so if you take the overall picture into consideration. Second, China’s stable steel output despite its slowing domestic economy has given support to iron ore prices -- the country is the main importer of seaborne iron ore -- which in turn are lending support to steel prices. Therefore, China’s exports serve a useful purpose.

India’s steel companies would also not want prices to rise sharply. The government is keen on keeping inflation in check, and frowns upon unusual spikes. Higher steel prices are also seen as being negative for its infrastructure-building ambitions. Therefore, while imports may seem a threat to India, as of now steel mills are in a strong position. They would also not want the government to feel threatened again and impose an export duty, which will hurt them in the domestic market, too.

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Ravi Ananthanarayanan
Moneycontrol Pro