Covid-19 pandemic to keep Indian steel exports subdued in near term: ICRA

In FY17 and FY18, exports staged a comeback, outstripping imports. Later, in FY19, steel exports again lost ground to imports.
The rapid spread of coronavirus and its crippling effect on economies across the globe is set to keep Indian steel exports subdued in the near term.

A report by rating agency ICRA Ltd forecasts that steel exports from the country are likely to be muted in the near term due to curbs on trade flow and depressed demand in buyer nations especially Italy and Belgium which accounted for 14 per cent of India’s outbound steel shipments during April-February period of FY20.

Since 2014-15, India’s steel exports and imports have witnessed a roller coaster run. Both in FY15 and FY16, imports trumped exports significantly. In FY17 and FY18, exports staged a comeback, outstripping imports. Later, in FY19, steel exports again lost ground to imports.

India had remained a net importer of steel during most part of the first half or April-September period of last fiscal. But the tables turned in the country’s favour as exports gained momentum during Q2 and Q3. In Q3, India turned a net exporter of steel. Between April and February of FY20, steel imports by the country contracted 10.4 per cent whereas exports soared 34.9 per cent. China, Korea, and Japan put together had a staggering share of 73 per cent in India’s steel imports in this period.

“However, given the risk of delayed deliveries due to bottlenecks in production, logistics, and port handling capacities, as well as the risk of transmission from import consignments, resulting in stringent scrutiny from port customs authorities, India’s steel imports are likely to remain low in the coming months”, the report from ICRA noted.

Following GDP growth trends, domestic steel demand has steadily decelerated, declining from 6.9 per cent in Q1 of FY20 to 3.1 per cent in Q2 and reducing further to 1.4 per cent in Q3. For the April-February period of FY20, steel consumption growth stood at 3.9 per cent while steel production growth remained meagre at 0.2 per cent during the same period.

While announcements like 15 per cent higher budgetary allocation towards the Jal Jeevan Mission, expansion of the gas grid from 16,200 km to 27,000 km and 40 per cent increase in Atal Mission For Rejuvenation And Urban Transformation (AMRUT) and Smart City Mission in the Union Budget 2020-21 remain key positives for domestic steel demand in the medium term, the rising number of confirmed Coronavirus cases and almost a month-long lockdown in India remains a concern.

“The same, along with the continuing macroeconomic headwinds, could affect domestic steel consumption and pressurise steel prices in the coming months. Consequently, we estimate the domestic steel consumption growth to remain low at 2-3 per cent in FY21, as against our November 2019 forecast of 6.5 per cent”, the ICRA report observed.

The report notes that domestic steel players witnessed a steady fall in mill inventory holding period from 53 days in November 2019 to 43 days in February 2020 as customers started replenishing inventories. However, as sales dried up following the imposition of lockdown from March 25, 2020, the declining trend in mill inventory holding is expected to certainly reverse from March 2020.

In end-February 2020, steel mills had an inventory level of 13 million tonnes (mt) of finished steel. “Our analysis suggests that if the lockdown is extended for the entire month of April then mill inventory levels could rise to 15.5 mt by end-April 2020, representing a sharp rise of 19 per cent. Given the uncertain demand environment, which could extend for the entire first half of FY21, end users would not be in a rush to place large orders to steel mills following the withdrawal of lockdown”, the report added.


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