Exports expanding for steel cos but domestic factors stay a worry
Indian steel manufacturers have a strong export cycle ahead of them. At the same time, declining domestic demand and the COVID-19 situation have emerged as major concerns for them.
In April 2021, Chinese steel exports remained strong for the second month in a row, the highest since December 2016. With 26% YoY growth, China exported 7.97mt steel in April. However, it was mainly on account of exporters rushing to avail the benefit of available rebates. In the meantime, China's steel imports have also continued to rise. It is an indication of strong domestic demand in China. Over January - April 2021, China's steel imports have jumped 17% YoY to 4.9mt.
However, this trend is highly unsustainable as China's new steel policy is set to impact the dynamics of the industry. China has withdrawn several export incentives in order to support the domestic industry. The exports are expected to come down significantly under the impact of it.
These new curbs will also decrease China's steel import as the majority of domestic production will have to find domestic buyers.
India: Exports on Strong Footing
Changing dynamics in China perfectly suits the Indian steel mills. Domestic steelmakers should be eyeing to fill the spot that China vacated in the international market.
Gaining a strong foothold in the export market is also a necessity for Indian steel makers to counter the weakness in the domestic market. Amid the rising COVID-19 cases and slowdown in economic activities, domestic steel demand declined ~25% MoM in April.
Due to the weak demand, India’s crude steel production also declined 21% MoM in April 2021. India’s steel imports declined 27% MoM.
Further indicating weakness in the domestic demand. Despite that, regional HRC steel prices have continued to rise due to the lack of supply.
Declining Domestic Demand is a Worry
Exports are holding up well and set to inch up even further. However, domestic steel consumption declined due to the slowdown in economic activities.
While the steel market would want to make up for soft domestic sentiments by increasing exports, the production is suffering due to the lack of oxygen supply. The government has currently restricted the supply of oxygen for industrial activities and diverted the stock of liquid oxygen for medical purposes only.
The steel ministry had recently informed that oxygen stocks at steel plants have reduced to just half a day from 3½ days earlier, with the majority of stock diverted towards medical use.
Oxygen is crucial for steel plants, primarily in blast furnaces and other processes like lancing and gas cutting. The shortage of oxygen supply has badly impacted steel production. And the industry could very well miss out on fulfilling the space that China has vacated.
Teji Mandi (TM Investment Technologies Pvt. Ltd.) is a SEBI registered investment advisor. Information in this article should not be construed as investment advice. Please visitwww.tejimandi.com to know more.