India became a net exporter of steel sheet products in May 2016 and has expanded its net export position ever since due to:
Falling imports owing to variety of trade barriers robustly imposed by the Indian government;
Recent capacity additions resulting domestic steel sheet production expansion outpacing underwhelming demand growth, thereby pushing Indian steel makers to seek export orders;
Trade action taken against large exporters who are in competition with Indian exporters, allowing Indian supplies to gain share in export markets.
In this Insight, CRU delves deeper into India's net steel sheet exporter profile and explores whether this will be sustainable in the medium term.
2015: the trouble with imports…
Indian net imports of steel sheet products reached a record 3.45 Mt in 2015. Indeed, this was a year of record arrivals from China, Japan and South Korea - a concern for Indian steelmakers for two reasons:
1. Imports were taking market share, as domestic demand growth was much lower than the surge in imports. Many steelmakers reported sharp declines in capacity utilisation rates at their respective plants as a consequence;
2. Indian steelmakers were on the verge of completing expanded capacity (both brownfield and greenfield) at a time of falling sales opportunities in both domestic and export market. Again, this had negative implications for operating rates.
2016: Drastic trade actions spur a dramatic turn of events
In response, strong representations were made to the government by Indian steelmakers for the imposition of trade barriers, on which the government acted surprisingly swiftly. Actions started with the imposition of an emergency trade barrier in the form of Minimum Import Price (MIP). Effective from 5th February 2016 for a period of 6 months initially (which was further extended for certain products later on), MIP was imposed on 173 out of a total 500 HS codes attributed to steel products. Products under these HS codes accounted for 80-85% of Indian steel imports.
Since MIP was a broad-based and some would say indiscriminate measure (applicable on imports from all countries), it attracted significant ire from the international trade community. In response, the Indian government replaced MIP with provisional anti-dumping duties (on key imported steel products originating from select countries) in a phased manner. The timeline of events of Indian government's trade actions is shown in the following chart:
As a direct consequence of these trade actions, Indian steel imports started falling sharply from April 2016 onwards. At around the same time, additional (new as well as renovated) steelmaking capacity, including at Tata Steel, JSW Steel, SAIL and Essar Steel, came on stream, thus significantly increasing India's output of steel sheet products. Domestic demand growth being rather subdued in combination with output growth in steel sheet created an oversupply situation, which pushed Indian steelmakers to look for export market opportunities. Initially, in 2016 Q2 and Q3, Indian export offer prices for HR and CR coil were less competitive than from suppliers in China, North East Asia and the CIS which limited the number of enquiries.
Nonetheless, during this period Indian suppliers were seen to be making headway into the markets which imposed trade barriers on traditional exporters (i.e. India's competitors). In 2016 Q4, global steel sheet prices started trending higher given low Chinese exports and hikes in bulk raw material prices. This allowed Indian mills to be more aggressive in pricing and thus increase their volume exports. The chart that follows clearly highlights this trend.
Indian opportunism as the Chinese back away from export markets? - not entirely
There is the notion in the market that Chinese suppliers becoming less aggressive in export markets (given more attractive margins in the domestic market) was the prime reason why Indian suppliers could significantly increasing their export sales. This is only partially true. The recent slowdown in Chinese finished steel exports has brought up prices (in general) in the seaborne market, which came about as a big relief for Indian steelmakers whose export offer prices were much higher than peers. Their export margins improved as result of this uptrend, thus allowing them more flexibility in their price offers and still make it economic to export.
On observing the product wise export portfolio of both China and India (see charts below), it can be clearly seen that India's steel sheet exports (particularly that of HR and CR coil) increased sharply in 2016 H2. Chinese sheet exports, on the other hand, were fairly consistent throughout 2016, especially to markets where Indian steelmakers were seen to be making inroads (i.e. Europe and South East Asia). This indicates that Indian exports did not substitute those from China, rather satisfied incremental demand of importing destinations by offering similar quality material at a competitive price.
Trade data clearly suggests the sharp growth seen in Indian steel sheet exports over 2016 H2 was quite targeted. Indian HR coil exports to South East Asia (particularly Vietnam) rose significantly in H2 while for CR coil, incremental purchases were made by buyers in the European Union. Coated sheet export markets for Indian steel suppliers remained more or less consistent with the historical trends.
Outlook: long term extension of trade barriers required to protect net export position
The latest communiqué from the Indian Ministry of Steel highlights that for the month of February 2017, Indian finished steel exports have grown 150% y/y. For January 2017, finished steel exports registered growth of 224% y/y per these statistics. So, the year 2017 is off to a good start in terms of India protecting its net export position, at least for steel sheet products. What will be crucial in the coming months are:
a. The government's decision on imposing definitive anti-dumping duty (valid up to 5 years) on HR and CR coil imports (originating from/exported by select countries) which is due in April 2017;
b. Effective implementation of BIS certification norms for steel products, which acts as an alternative trade barrier.
Meanwhile, the revival of domestic demand (CRU forecasts more than 8% y/y growth in apparent steel sheet consumption in India in 2017 in its Steel Sheet Products Market Outlook) may pull back suppliers from the export market to some extent. CRU understands that margins for Indian steelmakers in the domestic market are higher by as much as $75-90 /t at current HR coil prices, making the domestic market more attractive. Nonetheless, expanding sales networks overseas and therefore and expanding presence in various export markets now will definitely help Indian steelmakers maximise optionality when it comes to allocating expanded production from their newer assets across home and export markets in the near future.
CRU offers further analysis of all these issues across all markets and at a critical point in time, in our Steel Sheet Products Monitor. If you are a subscriber, you have this and all supporting data at your fingertips already, otherwise you can trial this service here. If you would like to discuss our market views further, including on the future direction of the market which we include in our Steel Sheet Products Market Outlook, please do get in touch.
Puneet Paliwal | Consultant, Steel
Puneet joined CRU's Mumbai office in 2014. He has worked across CRU's steel and aluminium markets analysis teams. In his current role, he covers metallics, semi-finished and finished steel markets of South Asia and the Middle East. He holds an Honours degree in Mechanical Engineering and an MBA in Power sector finance.