India’s steel exports to stay robust in 2nd quarter

India’s steel exports are on an upswing and, by the look of it, this trend is going to continue into the second quarter (July-September) as well. Provisional data compiled by SteelMint Research shows that the country’s exports of finished flats, finished longs and semi-finished items like billets were up a whopping 105.4% year-on-year (y-o-y) in the April-June, 2020 quarter at 4.3 million tonnes (MnT) against 2.09 MnT in the same quarter in 2019. On a quarter-on-quarter (q-o-q) basis too, exports are up 56.93% in April-June, 2020 against 2.74 MnT notched up in January-March, 2020.

Data reveals that the 2.74 MnT of exports in January-March, 2020 are down -26.93% q-o-q against 3.75 MnT recorded in October-December, 2019 and down -4.53% y-o-y compared to 2.87 MnT recorded in January-March, 2019.

Exports rose in October-December, 2019 on account of high inventory levels held by the steel mills in India against the backdrop of a dull domestic demand scenario. However, January-March (till the third week) saw exports weakening by almost 27% q-o-q because of improved domestic demand and consequent restocking by traders. And April-June has seen a steady upswing in exports thanks to the COVID-19 lockdown impact that subdued the market completely.

Why the surge?

Generally, demand for steel starts picking up from November onwards after the festive season ends, when prices too head northward �" and this trend is driven by demand and cost of raw materials. However, last year went against the trend. Demand was low, domestic traders did not purchase much from the mills, and prices languished. Hence, exports of finished flats, finished longs and semi-finished were on the higher side in October-December, 2019, to make up for lack of domestic appetite.

However, domestic demand started picking up from January, 2020 and from mid- January till February, it remained high, which, in turn, led to a drop in exports. Mills increased prices and traders, who sell the material to the retailers, did restocking, because they needed to feed the pent-up demand in the market �" infrastructure and construction projects get a push towards fiscal-end. Traders had not been buying heavily for the last 4-5 months since September, 2019 but dealing in small quantities due to lack of domestic requirements. So once demand resumed, traders started booking heavy orders.

“The uptick in demand seen in February and March this year happened because the last few months had not been so good. Thus, exports dropped in tandem to 2.74 MnT,” said another source.

In fact, in March, there was a sharp drop in exports to 0.83 MnT, the lowest since October 2019, which meant domestic demand was on the higher side. It may be mentioned that prior to the lockdown, domestic demand was showing signs of recovery, because COVID-19 had already entered other nations forcing them into lockdowns, especially Europe and the Middle East. This, in turn, forced the Indian mills to focus more on the domestic market.

However, the scenario suddenly changed from the end of March, after the nation went into lockdown from the morning of March 24, 2020, with exports spiralling to 1.08 MnT in April and to 1.61 MnT in May, 2020. It is expected that June 2020 exports will match May 2020 levels.

“Actually, nobody had anticipated what would happen in the next three months. Most players had expected the lockdown to be for a short duration. Till mid-March, many suppliers had even felt they should stock the material before-hand, in case the lockdown was implemented, so that they could sell once it eased,” observed the source.

Export destinations: Why China?

“By March-end, mills had piled up inventories but had no domestic market to sell to. On the other hand, China had seen the worst of its COVID-19 impact and was desperately trying to normalise the economy by easing the lockdown and that fuelled demand for semis and finished products. China is also opening up its auto market in a big way post-lockdown and so it needs HRC and flats,” said a source.

Mainly billets and hot rolled coils are being exported and a bit of finished flats. It is predominantly China though other destinations include Vietnam, the Middle East, the Philippines and Nepal too.

There are several reasons why China has opened up a pandora’s box for Indian steel mills, especially the integrated ones. First, many mills in China have put their blast furnaces (BFs) down, which are taking time to ramp up. Secondly, Indian imports are cheaper compared to domestic steel. Thirdly, the Chinese mills are showing a propensity to preserve precious raw materials like coal and iron ore till steel prices rise. Fourth, and important enough, Tangshan, the steel hub in northern China, implemented a fresh round of 1.6 MnT production cuts in March across 20 mills, due to which there is a scarcity in finished and semis. There had been a lock-down in some of the provinces in China but as soon as this eased there was a perceptible shortage of material against a backdrop where the country was trying to normalize the economy with a sharp infra and construction push.

“Another interesting factor is that India was offering billets and HRC cheap. So Chinese players adopted a strategy of purchasing from India and then waiting to resell the material at higher prices at an opportune time to earn a good profit margin,” said the source.

Export pricing

India has started exporting HRC in bulk quantities to China for the first time at highly competitive prices. In fact, prices had bottomed out from the beginning of April till the first week of May with Indian mills exporting HRC to China and Vietnam at rates as low of USD 388-390 per ton CFR. Gradually, prices improved to hover around USD 430/tonne CFR China and USD 435/tonne CFR Vietnam. In normal times, these prices stand at above USD 400 per ton CFR.

Circumstances were such for Indian mills that somehow they needed to liquidate inventory to make some money in the lockdown scenario.

Billets prices have climbed up from USD 360/tonne in April to USD 390 per tonne in May. “There was a USD 30 per tonne jump in billet exports prices in May compared to April. So the trend is definitely towards further consolidation in prices,” said RINL Chairman-cum-Managing Director P.K Rath.

“Prices plummeted 15-16% over a period of time and are still quite volatile. If one billet consignment fetches, say, USD 350 per tonne today, the price could slide 5-7% within 1-2 weeks. But there is consistent demand from China,” informed SAIL Chairman Anil Kumar Chaudhary.

Corporates gung-ho
Mostly all the integrated players are gung-ho on exports and China has the lion’s share in their exports basket. Steel PSUs like SAIL and RINL have relied heavily on exports these past few months since the lockdown for liquidating their inventory. SAIL’s Chaudhary recently told SteelMint that, as domestic demand has taken a hit, exports have surged, especially by the integrated producers. SAIL exported 1.18 MnT of steel goods in FY20, a record 54% rise y-o-y against 736,000 tonnes in FY19. Exports comprised mainly of semis (billets, blooms) apart from pellets and pig iron.

RINL, on its part, exported 120,000 tonnes in April 2020 and about 150,000 tonnes of semi-finished products and 25,000 tonnes of pig iron in May. In June, it has set an exports target of 2 lakh tonnes.

“China seems to be running all its downstream mills after emerging from the lockdown while steel-making capacity is in the process of gradual ramp-up. This accounts for Chinese demand for semis at a time when the construction and infrastructure sectors in that country are getting a big push from the government and most imported material is being channelled to these sectors. So, from India's point of view, if exports to China maintain their current pace for a couple of more months, along with exports to the Middle East, overall performance should be quite consistent,” Rath opined.

JSPL exported 700,000 tonnes of steel in 40 days post-announcement of the lockdown end-March, as per sources. In April, its production was at 560,000 tonnes out of which exports comprised 248,000 tonnes in April and 300,000 tonnes in May.

A senior official with a steel mill said there inventory has been depleting fast in the Chinese market hence, the demand for billets there. With the infra push, the demand for long products is also rising. Longs include wire rods and rebars. As all the other markets in the world were in a lockdown mode, everybody was looking at China where the demand for billets was approximately 2 MnT in April and exporters all over the world saw an opportunity there.

SAIL’s Chaudhary hints at another 20 MnT demand from China, mainly in the form of semis.

Conclusion

As per information available, mills are already booked for June and July shipments and are now targeting August shipments. But they are harbouring hopes of a resurge in domestic demand and are thus going slow this week, it is learnt.“They will first observe how domestic demand is going to trend and only then go for export order bookings, said the source.

But a source said domestic demand may rebound from September. The monsoon is going to span July to September mainly, when construction sector will be in a limbo and there will be no demand as such. “From September, prices may pick up along with domestic demand,” the source added.

By Madhumita Mookerji