The competition between Indian and Chinese steel players could intensify at global level, amid subdued steel demand in China, according to Icra.
In China -- the largest steel consuming country -- steelmakers could brace for an extended period of weak demand as the economy goes through the process of rebalancing of an overheated property market, which was a key growth engine driving the country's steel demand for the last two decades, the ratings agency said in its latest report.
According to Icra, in 2020-21, China emerged as the single-largest importer of steel from India. However, with the Chinese steel demand growth waning in the current fiscal, the share of steel exports to China by Indian mills has plummeted to just 8 per cent in the first half of the ongoing fiscal from 30 per cent in the preceding financial year.
"As demand dries up back home, a steadily rising trend in Chinese steel exports suggests that competition in the export markets between Indian and Chinese mills could intensify going forward," it said.
The demand has been affected as a few Chinese property developers faced financial issues, and the Chinese property industry accounts for around 15 per cent of global steel demand.
To prevent the housing market from overheating and to mitigate broader systemic risks to its economy, the Chinese government introduced the "Three Red Lines", which put in place a mechanism to prevent the piling up of excessive borrowings on the balance sheet of property developers, it said.
Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA, said, directly and indirectly, real estate related activities reportedly contribute around 25-30 per cent to the Chinese GDP and around 30 per cent to the Chinese domestic steel demand.
"Therefore, with the Chinese property sector accounting for around 15% of global steel demand, the ongoing readjustment away from a property driven model of growth in China is likely to have an adverse impact on the steel industry for an extended period. This could signal the start of mean reversion for the commodity, with spreads gradually starting to gravitate towards long-period median levels," he said.
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