India's steel exports to remain robust as China pares production capacity

Global prices stay at an elevated level, home demand also seen picking up

India's steel exports are expected to remain strong, especially with higher global prices amid falling Chinese shipment, as Beijing focuses on cutting around 30 million tonnes of excess annual capacity for lowering air pollution.

Exports during the first 10 months of this financial year jumped 40.2 per cent over the same period a year earlier, while domestic consumption grew 5.4 per cent. The country produced 88.6 million tonnes of steel during the period.

“It is the increase in exports that is causing domestic production to increase. We expect the year (FY18) to end with a production of more than 100 mt, mainly to cater to the export market," said an analyst with a local brokerage who did not wish to be named.

At present, steel price is around $650 a tonne in India, close to $900 a tonne in the US. Europe's steel is priced at about $750 a tonne and so is that of South Korea and some other Asian countries, say industry officials.

Industry officials think encouraging economic indicators in India could also push domestic demand. The country's industrial production grew 7.5 per cent in January from 7.1 per cent the previous month. Manufacturing in general grew 8.7 per cent. January was also a third straight month of more than seven per cent industrial growth. The capital goods segment grew 14.6 per cent, compared with a 0.6 per cent contraction seen in the year-ago period.

“We will be refocusing on the domestic market, as we are seeing a growth cycle pick-up. We are likely to re-orient our product mix for domestic market, bringing down the export ratio in the total revenue basket,” said Jayant Acharya, director (commercial) at JSW Steel. “Some part of this will play out in this quarter and the export ratio should gradually come below 20 per cent.”

Exports account for 23-25 per cent of total revenues for the Sajjan Jindal-led JSW. “The automobile (sector's) requirement has moved up in the domestic market, which will call us to redirect hot and cold rolled, along with galvanised steel, to the domestic market from exports,” informed Acharya.

Though domestic demand for steel is seen picking up, views remain mixed on whether the capital expenditure growth cycle will pick up. The government has set an ambitious target of 300 mt annual production by 2030.

“Today, we are 90-95 mt (annual) consumption and if we take seven-eight per cent (yearly) Gross Domestic Product growth, consumption should go to 120-130 mt. We do not have the capacity to meet this demand. The worry is that this scenario should not lead us to become a net importer of steel in the next five years,” said H Shivram Krishnan, director-commercial, Essar Steel.

Currently, Tata Steel and JSW Steel are the only two producers that have announced expansion projects – of five mt each at Jajpur in Odisha and Raigad in Maharashtra, respectively.

“We do not expect new project announcements in the near term, as the investment scenario is still not strong, thanks to debt-laden balance sheets,” said Jayanta Roy, senior vice-president at ratings agency ICRA. “However, the NCLT assets (those undergoing bankruptcy sales), once with stronger managements, could be utilised better to meet demand. But, it would mean (only) the existing capacity getting utilised," he explained.

At present, the domestic steel industry's average capacity utilisation is 82 per cent.