Indian steel export revival hinges on demand rebound

The Indian government's move to remove export duties on steel may allow mills to raise capacity utilisation, although an export resurgence and the trajectory of prices will hinge on a demand rebound.

The finance ministry withdrew a 15pc export duty levied in late May on pig iron and steel products classified under HS codes 7201, 7208, 7209,7210,7213, 7214, 7219, 7222 and 7227 late on 18 November.

"The current measures will provide a fillip to the domestic steel industry and boost exports," the ministry said on 19 November.

The duties had pushed down India's finished steel exports in October to a more than three-year low of 360,000t, which was also lower by 66pc on the year. April-October exports were lower by 55pc on the year to 3.96mn t, according to data from the Indian steel ministry's joint plant committee. India had also turned a net importer of steel for the second time in four months in October.

"The fundamentals in India are much better so we would definitely like to focus on the domestic market but, at the same time, the excess capacity that is available and underutilised will help us be more cost effective and keep us in a position to cater to any international demand that may come," a senior official at a major domestic steelmaker said.

"Overall sentiments will improve, and global markets will once again start looking towards India," the official added.

International market situation

Weaker international markets and the export duties had prompted Indian steel mills to bring forward maintenance works to balance supply-demand fundamentals in past months. Domestic hot-rolled coil prices had hit a one-year low in early September because of a seasonally weak monsoon season and import arrivals.

International steel markets have been on a downtrend owing to high inflation, a looming recession and low domestic demand, but India has proved to be a bright spot as demand and prices in the country have not slumped significantly.

Indian steel exports had declined even before the duties were put in place, so "real exports" will happen when the global demand situation changes and until then shipments will be subdued, a major domestic steel exporter said. "But at least the shackles are not there anymore."

"Countries like Japan and Korea have withdrawn their cheap export offers in the recent days, helping push offers up by some $30-$40/t, so workability should start returning to the market," the exporter said.

"International market prices remain between poor and poorer, so the only apparent benefit right now will be slightly improved demand," the head of steel exports at a domestic producer said. "Hopefully we will see a much-improved January-March quarter, as this quarter is of little use now because it's too late to book orders for December arrival at Europe."

Market participants do not see an immediate price hike in the domestic market, but long product prices in the secondary market have picked up by 2,000-3,000 rupees/t ($24-37/t) across the country since the morning of 19 November, according to traders. There has been no price change for hot-rolled coil (HRC) so far.

Coking coal cost pressure continues

The finance ministry has also brought back an import duty of 2.5pc on anthracite/pulverised coal injection, coking coal and ferro-nickel and of 5pc for coke and semi coke, which were removed in May.

Record-breaking coking coal costs this year had pushed steel prices to an all-time high in April, forcing the Indian steel industry to call on the government to look at the volatility in metallurgical coal prices.

"Majority of the steel producers in India are coal dependent and putting that [import duty] will further add to the cost pressures, and those price levels continue to prevail at a significantly higher level," the senior company official at a major steelmaker said. "So that challenge continues to remain."

Iron ore

The government also removed its export tax on iron ore lumps and fines below 58pc Fe and iron ore pellets from the 50pc and 45pc duties imposed earlier. Iron ore lumps and fines above 58pc Fe will continue to attract a 30pc duty as was the case prior to the May duty announcements.

"It's a very welcome development. Exports help the iron ore industry, especially for low grades that are not utilised in country's steelmaking," Federation of Indian Mineral Industries secretary-general RK Sharma said. But it will take a while to revive the market at a time of oversupply in the global iron ore market and a weak Chinese economy, he added.

By Sumita Layek and Deepali Sharma