Indian engineering exports hit by increasing raw material prices

Steel prices have increased from Rs 35,000 per tonne to Rs 42,000 per tonne in the past six months for a product like hot rolled coil, an essential raw material for engineering industry.

Rising steel and other metal prices coupled with the second wave of Covid pandemic has crippled India’s engineering exports, EEPC India, the apex body of engineering exporters, said and sought the intervention of the commerce ministry to address the issue.

Steel prices have increased from Rs 35,000 per tonne to Rs 42,000 per tonne in the past six months for a product like hot rolled coil, an essential raw material for engineering industry.

Prices of other metals like zinc have risen from Rs 170 a kg to Rs 220 a kg, resulting into the hike in prices of end-products. Freight charges have almost doubled due to which exporters of engineering goods are facing severe headwind.

There is also a scarcity of steel in the market, EEPC India chairman Mahesh Desai said, adding major European markets are witnessing a second wave of coronavirus while the US is reeling under the deadly impact of the pandemic.

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JSW Steel to ramp up production for 51% of iron ore need

JSW Steel targets to meet 51 per cent of its iron ore requirement through production from captive mines by March 2021. At present, 27 per cent of the ore supply happens from captive sources.By end of this financial year, about 85 per cent of the iron ore requirement for the Dolvi plant will be met through supply from captive mines. Salem plant will get entire requirement of ore, while the Vijayanagar plant will get much lesser 35 per cent of its requirement from our mines. Overall supply will be 51 per cent of the requirement.

JSW Steel acquired four iron ore mines — Jajang, Nuagaon, Ganua and Narayanposhi — in Odisha in February. These mines have 1,131 million tonne reserves, which constitute about 60 per cent of the whole reserves of iron ore in Odisha. Once these four blocks function with full capacity, it is expected to produce around 36 M MT per annum and meet about 70 per cent of its requirements. The steelmaker has three more mines in Karnataka where availability is going up from 4 M MT to 7 M MT.

Indian Steel Ministry targets to double rural steel demand

The government has a fixed objective of increasing rural consumption of steel from the current 19.6 kg/per capita to 38 kg by 2030-31. While the national steel consumption average stands at 74.7 kg, the government is aiming to increase rural per capita consumption to 36 mn t from the current 18-odd mn t/per annum. It deserves mention that demand emanating from rural India provided the silver lining during the COVID-19 lockdown when export demand coupled with rural recovery supported steel sales. A Ministry of Steel webinar held on 20thOct’20, with CII on board, deliberated on topics of pressing importance.

Tata Steel, JSW Steel to clock record profits as steel prices shoot up.

Big steelmakers such as Tata Steel, JSW Steel and ArcelorMittal Nippon will reap high profits as the steel prices rise above the pre-COVID levels. Prices have been shooting up for the last four months in line with the rise in iron ore prices. Big steelmakers with captive iron ore mines are largely unaffected by the rise in raw material cost, but are getting the benefits of the resultant rise in steel prices.  

The second quarter is going to be an unexpected bumper for big steelmakers as steel prices are consistently moving up due to the pent-up demand in the domestic market. The margins are high in the domestic market, unlike the export. If first quarter survival was because of the export, the second quarter will be the resurgence story of the domestic market.

The high flat steel consumption of automobile and consumer durables industries has helped in the rise in domestic demand. However, the long products sale is yet to come back to normalcy because of the continuing gloom in the construction and infrastructure segments. The steelmakers expect that the construction and infrastructure segments will bounce back in the third quarter as road, bridges and metro works restart in most of the states.

Tata Steel traditionally procures entire iron ore from its mines. JSW Steel got big captive mines in Odisha recently and plans to scale up production to around 80 per cent of their requirement. ArcelorMittal had captive mines around the world and can route it to their unit in India.

Tata Steel Production back at 100% Capacity.

Due to the market conditions, steel makers like Tata Steel were forced to cut down their operations by up to 50 per cent in April. The players also had to turn to exports to find markets for their produce. However, with the relaxation of lockdown norms, the company ramped up its production in a phased manner.

Its overall India operational capacity (including Tata Steel BSL and Tata Steel Long Products) is 20.6 million tonnes per annum (MTPA). In the first quarter of 2020-21, Tata Steel India produced 2.99 million tonnes of crude steel while sales stood at 2.92 million tonnes.

Tata Steel’s production level has now recovered to 100 per cent as the company sees a revival in domestic demand in the current quarter led by a good monsoon and rural economy. The company is now less dependent on exports compared to the first quarter. The COVID-19 outbreak in India, followed by the national lockdown, impacted the steel industry severely. It disrupted the supply chain and impacted the demand as well as production.

The other area where Tata Steel is seeing demand is where the government is spending including the oil and gas sector, water conveyance systems and railways. Construction is still a bit slow but the monsoon quarter has traditionally been the weakest quarter for construction. To counter the closure of the Indian markets in April and May, Tata Steel had ramped up exports significantly by tapping new markets and improving the supply chain capability and export constituted around 50 per cent of total sales volume in April-June 2020-21

Indian steel mills reduce exports to China

Steel manufacturers are reducing dependence on China for exports, with the gradual opening up of business across the world.

Even though the country still accounts for the lion’s share of semi-finished steel exports from India, China has come off from the highs during the lockdown. According to data from the Joint Plant Committee (JPC), India exported 1 million tonnes of semi-finished steel to China during April and May, while total semi-finished steel exports stood at 1.3 million tonnes.

Steelmakers expect exports to reduce, with an improvement in domestic demand. The lockdown had pushed steel exports to record levels, with semi-finished steel in the first four months of FY21 crossing the overall volumes of semi-finished steel exports in FY20.

Finished steel exports during April-July were more than 50 per cent of total volumes of finished steel exports last year.

Most firms resorted to exports during April and May, to tide over the lockdown that hit end-users of steel. However, there was a decline in exports month-on-month. In June, finished steel exports stood at 1.5 million tonnes while semi-finished steel was at 991,000 tonnes. But in July, the corresponding figures were 1.38 million tonnes and 941,000 tonnes.

Even After Trade Tensions, China Is Importing Large Quantities of Steel From India

While many businesses have been hit during the pandemic, India’s steel exports have reportedly more than doubled between April and July and hit their highest level in at least six years. This is because of a surge of Chinese buying. 

Trade tensions between the two countries have been high since the Galwan valley face-off between the army of the two nations. While India is running a ‘self reliance’ or atma nirbhar Bharat campaign, it looks like Chinese buyers are importing steel from India in defiance of the tensions Beijing and New Delhi. Traders said reduced prices had led them to the purchase as Indian sellers sought to get rid of a surplus generated by the impact of COVID-19 on domestic demand and generate much-needed income.

Its not clear whether the sales broke any rules but the China Iron and Steel Association is reportedly monitoring them. Steel companies Tata Steel Ltd and JSW Steel Ltd were among Indian companies that sold a total of 4.64 million tonnes of finished and semi-finished steel products on the world market between April and July. In comparison, 1.93 million tonnes was shipped in the same period a year earlier.  Vietnam and China bought 1.37 and 1.3 million tonnes of steel of the 4.64 million tonnes. These  Chinese purchases are the largest since data was first collated in the current form beginning with the fiscal year April 2015-March 2016, the report states. Even though China, the world’s leading steelmaker produces vast quantities, its still importing as it has ramped up infrastructure spending.

During the first four months of the 2020-21 fiscal year, China and Vietnam together bought close to 80% of India’s total hot-rolled coils exports, the data showed, while the product constituted more than 70% of India’s steel exports.

Steelmakers hike prices by Rs 2,000 per tonne as demand improves

Indian steel sector seems to be on the road to recovery with companies increasing prices by around Rs 2000 per tonne across all products this month on the back of better demand and rising global prices. This is the second hike in less than a month after companies raised the metal price by about Rs 750 per tonne in July.

A combination of global price hike, supply correction that has happened overall in the system, and a pent-up demand as several segments are trying to make up for the lost quarters. In June the demand was very low and there were no margins, thus the price hike is well absorbed

State-run Steel Authority of India said its bookings remain strong even after the recent price hike.

Domestic steel prices are following the international price trajectory that saw a strong recovery on increasing demand from China. Car sales are slowly picking up in the country, while two-wheeler and white goods segments are doing well. Indian Railways is expected to start train service this month and the market will be bullish from then on

 

Pains suffered by the Indian Steel Industry during the Pandemic.

In April and May, covid-19 crushed domestic industrial and consumer activity. The hit on India’s biggest steel mills, which make up 65% of the country’s annual output of about 110 Million MT, was calamitous.

The industry has been left standing still. The cost of standing still has been very high.

During the pandemic, the mills’ massive blast furnaces continued to burn but made less than a third of pre-covid-19 levels of production. Why keep the blast furnaces burning for so little output? Because closure and reopening can take up to 12 weeks; the process is complex; and maintenance costs are high. This remains the nuclear option for steel makers.

In short, India’s mills continued to bear high fixed costs: firing furnaces but without making much steel. Big integrated mills posses the manufacturing and marketing agility, and capital base, to survive, with bruises. Smaller mills, which account for about a third of national output, lack the strengths to survive a trough, and many have capitulated.