Indian steel firms race to plug demand gap in China amid Covid-19 crisis

Indian steel companies have cracked open an export opportunity in China — the world’s largest producer of alloy — due to the disruptions caused by the Covid-19 pandemic. 

Domestic firms are racing to plug the demand gap in China. In April and May, domestic steel producers exported mostly semi-finished steel to China. Overall exports of semi-finished steel rose 66 per cent year-on-year in April. Though the exact figure for semi-finished exports to China is not known, steel producers say a bulk would have gone to China. The share of semi-finished steel in total exports stood at 26 per cent in FY19, and 25 per cent in FY20. In April, however, the share was 41 per cent.

Steel Authority of India (SAIL) exported close to 130,000 tonnes of semi-finished steel to China during April and May. Total steel exports of the firm in the same period stood at around 200,000 tonnes. Exports to China were approximately 65 per cent of total exports during the period.

Rashtriya Ispat Nigam (RINL) said it exported over 90,000 tonnes of steel to China in May. “It is understood that the Chinese are currently not using the steel melt facilities, but only operating the mills to cater to their construction sector and infrastructure requirements,” said RINL. 

All major private sector producers, too, exported to China. Jayant Acharya, director (commercial and marketing), JSW Steel, said: “China is buying semi-finished steel and hot-rolled coils that they will further convert to downstream products.” 

V R Sharma, MD of Jindal Steel & Power, also said China had emerged as a good market for semi-finished products. Tata Steel is also understood to be exporting to China.

Industry officials said though India used to export to China years ago, the latter has only, at present, emerged as a new market for Indian steel, especially semis. India mostly imports from China, with total steel imports from the nation at 1.21 million tonnes (mt) during FY20; exports were nil. That, however, did not include semis. 

The key reason of the demand gap in China is the country’s pace of return to normalcy.

According to the World Steel Association (WSA), reduction in global steel demand this year will be mitigated by an expected faster recovery in China, compared to the rest of the world. The association expects Chinese steel demand to increase by 1 per cent in 2020. In contrast, steel demand in developed economies is expected to decline by 17 per cent. 

Acharya expects sustenance in exports to China, as it pushes up domestic capital expenditure to spur demand. 

RINL, too, said that for the next few months, China will have the lion’s share of exported semis. 

However, Jayanta Roy, senior vice-president at ICRA, expressed concerns over exports of semis. “According to data, India exported close to 0.3 mt of semis in April, which was over 40 per cent of the country’s total steel exports for the month — significantly higher than the levels in the previous two years. While exports provided some relief to steelmakers in the near-absence of domestic demand, export of low-value added steel doesn’t augur well for the country’s steel sector in the medium-to-long term,” he said.  

Steel firms have been resorting to exports to tide over weak domestic demand, with industrial activity yet to restart in India. 

Acharya said exports were driving business. “For us, export dependency will be high for the next few months.” 

He added that demand from South-East Asia was healthy. “Supply gaps from Japan and South Korea, caused by the shutdown, has created a demand gap. There has been gradual improvement in demand from West Asia,” said Acharya. 

Most firms have ramped up production since April; a major driver has been exports. Till demand in the domestic market normalises, the trend will continue. 

Acharya expects demand to be at 80 per cent-levels by October-December, and return to pre-Covid levels by January-March.  “Normalisation of demand in the domestic market will be sector-specific. Construction, accounting for 60 per cent of steel usage, will improve first on the assumption of government pushing the infrastructure pipeline,” explained Acharya.