China's change in steel policy means more positive news for Indian steel makers

Apr 30,2021

The Indian steel industry is being greeted with one piece of positive news after the other. Yet more action by China on its steel industry rounds up that list.

The country has announced the removal of VAT rebates on exports of 146 steel products with effect from May 2021. Currently, about a 13 percent rebate is offered on the export of hot-rolled coil, wire rod, rebar by China.

Further, import duty on pig iron, crude steel, and steel scrap has been cut while export duty on Ferrochrome, Silicon Steel, and foundry pig iron has been raised.

In the last few months, China has been on a decarbonization drive. The steel industry, a key polluting industry, has been clamped down.

Output restrictions have been placed on China's largest steelmaking city, Tangshan. The changes in the duty structure thus suggest that the country is ready to address any potential shortages in steel that may come about in China due to the output curbs.

The implications of these moves will be felt on International steel prices and prices back home as well. With fewer steel exports, Indian steel players now have even more room to hike prices.

Credit Suisse says the market was anticipating these rebates and duty cuts and hence export prices are now at a premium of $30/tonne vs a discount of $50/tonne in Feb. Kotak Securities says that despite the hikes taken by domestic mills, Indian steel prices are still at a 15 percent discount to import parity.

"Dealers expect another Rs. 2000-3000/tonne price hike in HRC in May 2021 and we see the potential for a total of Rs. 5000-6000/tonne hike in May-June 2021", says Kotak. Credit Suisse says that they expect India's spreads to improve further as mills hike prices. Steel stocks continued their upward trajectory, with JSW Steel and Tata Steel hitting record highs.

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