Indian steel makers double down on exports as domestic demand disappears

SAIL produced 16.15 million tonnes (mt) of steel in FY20, highest among Indian producers. The 1.18 mt that it exported last year, although a fraction of its total production, was its highest ever overseas sale.

In the first two months of this fiscal, however, SAIL has been ramping up exports and building new customer relationships abroad. A spokesperson for SAIL told Mint: “With the quantum of booked export orders, physical exports during May and June of 2020 would be substantially higher than previous period. Depending on relative market situation, SAIL will take a call on maintaining higher export volumes during subsequent months as well. SAIL has also commenced exports to China, which is comparatively a new market for our company."

This pattern holds true for other major Indian steel producers as well. Recovering from a brutal lockdown, after the covid-19 pandemic, China has been slowly returning to full scale production of crude steel. So non-integrated steel mills in China and southeast Asia that depend on Chinese crude steel are now turning to imports from countries including India.

SAIL's products booked from China are primarily semi-finished steel - both billets (processed further into long products) and slabs (for flats) and hot rolled coils.

“The liquid steel manufacturers in Asia are down and unable to supply to their customers," VR Sharma, managing director, Jindal Steel and Power (JSPL), told Mint. “There were also restrictions in inter-province movement in China from January to March, and we expect the situation to remain the same for the next 2-3 months. So we’re seeing a difference in the kind of products we’re exporting to different markets. In China and South Asia, there’s a lot of demand for semis while in markets in Europe, where the entire steel industry has stopped functioning, there’s a demand for finished products."

JSPL exports to China, Europe (Germany, Denmark, Italy, Spain) and the Middle East. Sharma said while demand in Europe and Middle East is for plates, structurals, round billets and rail blooms, southeast Asia’s demand is for pig iron and billets. “Europe has not started construction activity, while China and southeast Asia have, so we’re seeing more demand for long products from the (latter) markets." While about 60% of JSPL’s production was sold domestically last year, in April and May, about 75-80% of production was directed to exports.

AM/NS India, the west coast steel manufacturer, said a significant portion of its steel production in the current fiscal was exported. “In recent months, we have been actively monitoring and adjusting production at our plants to respond to the effect of Covid-19 on domestic steel demand and we continue to maintain stock levels in line with the needs of our customers. In May, around half of our total steel production is destined for export markets, including China," a spokesperson for AM/NS said.

The focus on exports come even as India's steel production has declined because of the lcokdown.

Of the only two large steel players that have declared their production numbers for April so far, JSPL's crude steel output was flat year-om-year at 6.5 lakh tonne while total sales fell 29% to 4.55 lakh tonne.

JSW Steel, the second largest private steelmaker in the country by capacity, saw production crash to 5.6 lakh tonne in April, with the company’s plants operating at 38% capacity in the first full month of the national lockdown.

Despite export volumes going up, realisations are likely to stay flat.

Amit Dixit, assistant vice-president - research, Edelweiss Securities, believes that companies are exporting at prices they can get, not looking at margins. "For steelmakers, keeping cash flowing is important and they are not looking at the margins on these export sales. We expect realisation for steel companies to fall about 15% year-on-year as export prices are down about 25% compared to last year. Assessment of domestic prices in the market is difficult now because very limited transactions are happening but when off-take resumes, we expect domestic prices to follow suit."

Meanwhile, logistical challenges within India continue.

Sharma of JSPL said as more companies start exporting, there will be a higher requirement for railway rakes and trucks. “Congestion has gone up at ports and we are still facing problems with availability of trucks. It takes about three days longer than before to move inventory."

Even so, with exports being the only option, JSPL has orders booked until June.