In 2015, India stepped up to become the third largest producer of steel in the world with 89.3 million tonnes production and is poised to become the second largest producer in the world in 2016. At 6-7% growth in demand for steel, India perhaps is the only country holding a straw in the stormy sea for the global steel industry – worldsteel Association expects global steel demand to grow a mere 0.4%.
India’s steel production grew by 6.03% in FY16. Total steel production by the end FY17 is expected to be 97- 98 million tonnes. FY15 crude steel production stood at 84.5 million tonnes.
The Indian government seeks to produce 300 mnt steel by 2025 and sure enough, new steel capacities are joining in, taking India’s production up a few millions at a time. SAIL’s Burnpur plant adding 2.9 million tonnes capacity was inaugurated in May 2015. The more recent ones include Tata Steel’s Kalinganagar plant, JSPL’s new rebar mill and more. Also, existing plants like Essar Steel are optimizing production. These are the torch bearers of the Indian steel industry’s 2025 aim.
Having said that, India’s leeway to export steel becomes an area of interest and speculation. While steel makers are rooting to protect the Indian steel industry with anti- dumping duties and MIP, Indian steel consumption and demand will outrun production at some point. Meanwhile, with China facing trade barriers across the globe and its own environmental concerns forcing production cuts, export of steel from India may start looking viable in time.
Let us do a product-wise assessment of India’s export potential.
Crippled for about 3 years following Supreme Courts’ ban on mining, Indian iron ore exports fell to the lowest levels of 5 mnt in FY15. In the same year, import scaled up to 15 mnt. Recovery in iron ore export began only in Q2 FY16 amid viability concerns due to the stunningly low global prices of the commodity, making the progress slow. As the struggle intensified with continuous fall in iron ore prices, to support export of low grade iron ore from Goa, export duty of 30% was removed in February 2016. Now, in a recent development, Odisha government has recommended abolition of export duty on high grade iron ore as well. The export duty for high grade iron ore is 30% at present. Speaking on the subject, Deepak Mohanty, Director of Mines, Odisha shared that they approached the mines ministry to remove 30% export duty on export of high grade ore from state so as to boost exports. However, update on the same from the ministry is awaited.
India, once a strong contender in the world’s top exporters list, is steadily making a comeback; however, facing the headwinds from Australia and Brazil is daunting. With mining giants Australia and Brazil taking down their production costs lower and lower, ramping up and adding capacities at the same time, the global iron ore market is headed towards a massive glut in near future.
Pellet exports from India have been on an uptrend since the beginning of FY17. Q1 of the current financial year has already recorded numbers equivalent to total export in FY16. In Q1 FY17, largest pellet exporters were Jindal Steel & Power (JSPL) at 0.45 mnt, followed by Brahmani River Pellets (BRPL) at 0.27 mnt, KIOCL at 0.06 mnt, Essar Steel at 0.05 mnt and PEC at 0.01 mnt.
KIOCL kicked up quite a storm in the news sphere towards the end of FY16 when it began exporting pellets to Iran on conversion basis; although, no shipments from KIOCL were heard after May. Only recently, the company started procuring iron ore from NMDC and it is expected that export shipments will be seen voyaging from KIOCL very soon again. Also, JSPL and Essar Steel have increased pellet production. JSPL’s pellet production increased by 43% y-o-y from 3.22 mnt in FY15 to 4.59 mnt in FY16. Recently, Essar reported in its quarterly results that its pellet production in Q1 FY17 recorded a growth of 58% y-o-y. It produced 2.02 mnt pellets in Q1 FY17 against 1.28 mnt in Q1 FY16.
While exports are looking good for pellets, the domestic demand has suffered a setback with lumps becoming available more cost effectively, thus being favored by sponge iron manufacturers. Meanwhile, China has emerged as a major destination for Indian pellets. Out of the 0.84 mnt pellets exported from India in Q1 FY17, over 90% (about 0.77 mnt) was exported to China and the rest to Oman and Japan.
Uptrend in spot pellet premium in China has also been a major supporter of pellet export from India. Since the beginning of 2016, spot pellet premium has been witnessing northward movement. Towards the beginning of Jan’16, spot pellet premium for Fe 65% was available at USD 10.6/dmt, CFR China. However presently, it is assessed at USD 34/dmt, CFR China.
Considering all, Indian pellet export is expected to keep strong for at least the next two quarters.
With over 400 units, India is the world’s largest sponge iron (DRI) producer, boasting an annual production of about 26-28 mnt against installed capacity of 46-47 mnt. The Indian sponge iron industry is highly fragmented in terms of production capacities. Top 20 producers contribute about 60-65% of total production, whereas the rest contribute 35-40% of the production. Based on data published by SteelMint, sponge iron production was recorded at 28 mnt in FY16, noting a 22% y-o-y surge from 23 mnt in FY16. The production is expected to reach 29.5 mnt in FY17. Of the total production in FY16, sponge iron (C-DRI) accounted for nearly 54% and pellet sponge(P-DRI) accounted for about 46%.
FY17 has greeted sponge iron export with a good start. Export in Q1 FY17 boasts a 100% increase from that in Q1 FY16. Indian sponge iron exports almost doubled during June’16 against m-o-m, to 26,584 mt from 17,930 mt. Bangladesh remains the largest importer of Indian sponge iron. Of the 105,859 mt of the commodity exported during H1 2016, Bangladesh bought 102,504 mt. Higher imported scrap offers and recently imposed 20% import duty on billet has led Bangladeshi smelters to increase sponge purchase as well as consumption. It is anticipated that Bangladeshi smelters will further increase sponge iron import to feed their rising Billet production. This will support Indian sponge iron market.
Alongside, prices have been increasing supported by firm demand both globally and domestically. Sponge offers have moved up continuously as recent as the first week of September. The sponge market is gaining support from the increase in coal prices and mismatched demand-supply.
Pig iron has been piggybacking Chinese billets, the rising offers for Chinese billets, to be specific. With iron ore and coking coal prices gaining some strength, China’s offers for billets increased and global buyers shifted focus on Pig iron as replacement of their feed to the mills. Indian bulk Pig iron exports rose in Aug’16 owing to improved demand from global buyers. India exported 54,750 mt in Aug’16 against 20,000 mt in July’16.
Demand for Pig iron has also improved in the global market due to rising seaborne scrap prices. Scrap prices have gained roughly from USD 227/mt to 229/mt in the month of August.
As a testament to increasing demand, MMTC recently increased the quantity offered in a tender from 15,000 mt to 30,000 mt; a fairly optimistic move banking on good demand for the commodity. The company in August made a shipment for 15,750 mt of the material to Bangladesh. SAIL too shipped 18,000 mt to Bangladesh in August. It is to be noted that Bangladesh import query has picked up due to expensive international scrap and import duty on billets. Besides, Bangladesh has also increased billet production in local market. Vedanta exported 20,000 mt Pig iron to Thailand in August.
Flat steel has been mired in the supply glut, courtesy of China. Although with more and more protection measures adopted by countries across the globe to keep Chinese steel at bay, nooks in the glut have opened up to be filled in by steel offered at competitive rates. India, gaining advantage from a stable currency, has been able to fill in the nooks. Rising offers from China amid production cuts have also favored Indian steel exports, simultaneously supporting raise in Indian export offers, especially after the anti- dumping duty announcement on flat products in the first week of Aug’16, the country’s domestic steel market is buoyed with positive sentiments. The effective increase in flat product prices in the month of August was INR 1,000-1,500/mt.
Indian steel manufacturers booked huge quantities for exports in the month of Aug’16, for which shipments will be made in Sept’16. According to market participants, almost 650,000 mt steel (HRC, CRC, GI, coated) has been booked by major Indian steel players. These numbers were approximately 200,000 mt in July and 210,000 mt in June, according to data maintained by SteelMint. Most of the exports are made to Europe and South East Asian countries. Improved demand and higher Chinese offers are likely to trigger an increase in export offers by Indian manufacturers in September. Also rising coking coal prices, which have increased the cost of production, will prompt manufacturers to raise their offers.
Indian billets have been journeying to Bangladesh lately. Indian billet offers stand more competitive at present than those of China. With Bangladesh ramping up steel capacities and intending to produce better quality steel, it is proving a substantial market for Indian billets. Although, Bangladeshi steel manufacturers are leaning towards import of ingot over billet due to the imposition of USD 150/mt import duty on billet (HS code 7207) back in June’16.
In Durgapur, most of the manufacturers are eyeing to export ingot as they fetch premium of approximately INR 400/mt as compared to material sold in the domestic market. In West Bengal, around 60-70% ingot manufacturers are active in exporting the material to other nations. NINL, Shyam SEL, Shree Ganesh Metaliks are the recent exporters of billets to Bangladesh.
Meanwhile, domestic billet offers are going strong. During August, Indian sponge and billet prices rose significantly on the grounds of improved demand for both semi & finished steel products and also rising prices of all key raw materials. Analysts are keeping a positive outlook for export of semis in the coming months.
Clearly, India can export steel, also be an export major. With ambitious plans to achieve 300 mnt production, the country could be exporting more steel in time to come. Even as the Indian steel industry is struggling with cheap imports, support from the government bodes well. Emerging markets such as Bangladesh and Iran store huge potential to become India’s major export destinations. At present, steel export looks favorable from India and it could be just the beginning.
Source: Steel 360 Magazine September’16 Issue