India's FY'24 net steel exports seen falling to 8-yr low amid record imports

• China becomes major challenger in both exports, imports
  
  
• Vietnam follows in China's footsteps, spoils exim party
  
  
• BIS licences, EU quotas to come into play in short term
  
  

Morning Brief: India's net steel exports are provisionally expected to touch an eight-year low in financial year 2023-24 (FY'24).

India has remained a net steel exporter since FY'16. However, in FY'24, the net export volumes are seen hitting their lowest of 0.5 million tonnes (mnt) in last eight years.

Finished and semi-finished (billets) exports may also fall to their second-lowest levels of around 9 mnt (lowest of 8.75 mnt seen in FY'23) while imports may end the fiscal at a hefty 8.5 mnt, the second-highest since FY'16. Net exports are expected to fall in FY'24 essentially because of the bloated imports figure.

Net export is calculated on the basis of exports minus imports.

The lowest point in steel exports in the decade, as per BigMint data, was in FY'16, when volumes hit a nadir of around 5.60 mnt and imports climbed a peak of over 10 mnt, bringing down net exports to -4.66 mnt.

Factors that pulled down India's steel exports in FY'24

China takes away lucrative markets: China, propelled by weak domestic demand and currency devaluation, took away large chunks of India's export markets with attractive offers. The Middle East, which recorded the highest imports from India in CY'22, at over 3.30 mnt, saw the same plunging 50% to a little over 1.60 mnt in CY'23. On the other hand, Chinese steel exports to Middle East and Africa rose 44% y-o-y to 26 mnt in CY'23.

Plus, Vietnam, traditionally one of India's largest steel export destinations, became China's key focus market. India's steel export volumes to Vietnam fell 72% to 1.13 mnt last year but those from China rose 70% y-o-y to 9.25 mnt.

Vietnam becomes aggressive in exports: Vietnam too became quite aggressive in exports last year. Even though its crude steel production fell 5% y-o-y to 19 mnt, exports rose a substantial 40% y-o-y over April-December 2023 to nearly 8 mnt. Weak domestic demand and high costs goaded Vietnam's mills to reduce production. Crude steel production in Vietnam in January-November was about 17.3 mnt, down 7% y-o-y, while consumption was about 16.9 mnt, down 2% y-o-y. These factors combined to increase exports to 11.13 mnt in 2023, up 33% y-o-y.

Nepal's billet imports drop on backward integration: Nepal is predominantly an imports-dependent country, which results in huge foreign exchange drain-out. A concerted infra boost by the government resulted in a growing demand for steel. However, the country, to stem forex outflow amid a sliding currency, encouraged domestic mills to opt for backward integration and develop their own melting capacities which led to huge imports of sponge iron as a feed, mainly from India because of the geographical proximity and logistics viability. The focus has been on using sponge iron to make steel rather than importing costlier billets. Resultantly, India sponge iron exports to Nepal were up 48% to 0.74 mnt in April-January, FY'24 against 0.5 mnt in CPLY while semi-finished (billets) exports declined 38% to 0.18 mnt in this period (0.29 mnt in CPLY).

Geo-political factors: Overall, global steel demand was subdued in the period under review as geo-political factors ensured sustained inflation, sliding currencies and supply disruptions and detours that also increased freights. This resulted in drop in Indian steel exports to Turkey. Russia's war with Ukraine showed no signs of de-escalation while fresh trouble broke out in the form of the Palestine-Israel war and the more recent Red Sea crisis.

Reasons behind increased steel imports into India

India's good domestic demand: End-buyers imported in hefty numbers because of two factors. One was good domestic demand. Over April 2023-January 2024, total finished steel consumption climbed to 112.42 mnt, an over 14% increase from 98 mnt in the same period in the previous fiscal.

Cheaper imports from China: Chinese steel exporters aggressively sold across the world at highly competitive prices, impelled by dull home demand and the yuan's depreciation. Chinese steel exports to India in January-December, 2023 rose 94% y-o-y. Two, because of price viability. Landed prices of Chinese HRCs into India averaged INR 52,482/t ($633/t) over April February, FY'24, 7% lower compared to domestic average prices of INR 56,291/t ($679/t), ex-Mumbai.

Vietnam increases exports to India: Countries other than China also exported to India in large volumes. India's steel imports from Vietnam touched 0.77 mnt in April-January 2024, up a humongous 353% from 0.17 mnt in CPLY. Again, price viability came into play.

Outlook

India's steel imports may drop in the remaining period of the current fiscal as BIS licenses are yet to be renewed. Exports too may fall in the near term as European Union quotas have been exhausted. But overall export allocations may rise in FY'25 as additional supplies are seen from NMDC, JSPL and others while home demand may not see any significant improvement due to the elections this year.