Evergrande debt crisis won’t affect domestic firms, say industry executives
The news of Evergrande’s inability to service its $300 bn debt set off panic in global markets
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Shenzhen-based Evergrande Real Estate Group’s debt woes will not affect Indian steel manufacturers as domestic firms do not cater to the Chinese market. Instead, steel majors are hoping to clock record exports this fiscal year, said industry executives.
“China is a large economy and the ripples of Evergrande will only be felt within China, not outside. Besides, China is not our market. Our prime market comprises the customers of China—South-East Asian countries like Indonesia, Malaysia and Thailand, Australia, and West Asia. This market is readily available to Indian companies," V.R. Sharma, managing director, Jindal Steel and Power Ltd (JSPL), said.
Ever since the news broke about Evergrande’s inability to service its $300 billion debt, it set off panic in global markets.
In a knee-jerk reaction on Monday, the BSE metal index, which tracks prices of top 10 metals and mining firms, slipped 6.8%, dragging the Sensex down by 0.9%. Tata Steel Ltd was the biggest loser, down 9.5%, followed by JSPL (9.1%), National Mineral Development Corp. (7.7%); and JSW Steel (7%). After the initial jitters, the BSE metal index on Wednesday was up 1.6%. The Sensex, however, fell 0.13%.
With China accounting for over half the global steel demand and absorbing 75% of global iron ore imports, its decisions have a direct bearing on the global market and prices. Last month, China capped steel output to control emission and decided to implement ultra-low emission levels by reducing crude steel production by 8.8% to 21.7 million tonnes for 2021.
“With China focusing on reducing carbon emissions, their capacity for making crude steel will be down. Instead of producing crude steel, they will buy 20% semi-finished steel or products. This will help Indian steel companies expand their ambit to China’s customer countries and push our exports," said an official of a steel manufacturing company, requesting anonymity. This year Indian companies could export steel worth ₹1.8-2 trillion.
India’s finished steel exports were at 10.78 million tonnes in 2020-21, against 8.3 million tonnes in 2019-20. Between April and June, India exported 3.5 million tonnes and imported 1.1 million tonnes of finished steel. In the last fiscal year, total production stood at 96.2 million tonnes, while consumption was at 94.89 million tonnes. India exported 10.78 million tonnes, while it imported 4.75 million tonnes of finished steel in FY21.
“While subdued domestic demand during Q1FY22 was a factor behind the spurt in exports, China’s production curbs in H2CY21 and its accommodative policy for imports of semis and scrap are expected to keep India’s steel exports (finished steel and semis) at elevated levels. We expect net exports to rise at 8 million tonnes in FY22 compared to 6 million tonnes last fiscal year," said Priyesh Ruparelia, vice president, co-group head, corporate sector ratings, Icra Ltd. Exports were up by 13% in April-August despite the high base of FY21, but steel spreads are expected to fall quarter-on-quarter, unless domestic demand improves in Q3, he added. “Assuming spot coking coal prices of $379 per tonne to continue till October, average cost of coking coal would increase by $140 per mt in Q3 compared to Q2. This will translate into a cost increase of ₹8,300 per mt, while iron ore prices have reduced only by ₹1,200 per mt in Q2 FY21 and may not fall much in Q3 due to expected supply tightness in Odisha," said Ruparelia.