Steel exports to China see a transient surge, local firms eye other export markets

Jun 29,2020

While the balance of steel trade with China is now tilted towards India for the first time, domestic primary steel producers might still consider it convenient to lend a voice to the 'boycott China' bandwagon, as the recent spike in exports might be a temporary trend that will soon disappear.

While zero duty on imports from countries like Japan and Korea with which New Delhi has free trade agreements (FTAs) to boost overall imports, the government has had to rein in predatory imports from China with different tariffs and non-tariff measures in the past, mostly on the demand of primary producers.

Yet, with India being a net steel exporter to China both in April and May, primarily because China manufactured less of its alloy in the midst of the Covid-19 pandemic, the export prospects for Indian steel companies such as JSPL, which grabbed it with both hands to make up for domestic demand, have improved.

Nevertheless, JSPL has now started to look for exports in new markets such as Indonesia, the Philippines, Vietnam, Taiwan, Malaysia, Australia and the Middle East.

VR Sharma JSPL’s managing director said, “Export to China is only a temporary phenomenon, a very rare thing to happen. Since Chinese mills were producing at a lower capacity during the December-March period, there was a short-term supply disruption. Steel mills there are producing at 80-85 per cent capacity in June which is expected to go up to 100 per cent in July. Exports to China have already tapered off.”

China contributed 20 per cent of India's overall imports of 7.8 million tonnes of steel in 2018-19. In the previous fiscal year, 25 per cent of the overall imports contributed to 7.5 million tonnes. However, in both years, China accounted for negligible exports from India.

ICRA Limited's Jayanta Roy said, "Indian steel producers would have to push for exports, even if it remains a less profitable proposal, to run plants at a better utilization rate as domestic demand remains sluggish at least in the first half of the current fiscal year as a result of the lockdown. Nevertheless, as steel demand within India is revived, export reliance is likely to decrease, in line with earlier patterns.”

Requesting for anonymity, the steel expert said, "It is only likely that China will respond if India makes attempts to block Chinese imports into India. This can prove to be counter-productive for secondary steel producers, especially since they are largely dependent on imports of semi-finished material for the production of finished products. Project costs would likely increase, in general.”

Pellet exporters, as well as low-grade iron ore exporters, will also feel the heat, he said.

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