Rising imports from China, Russia hurting Indian steelmakers

India is among the many countries bearing the brunt of cheap steel imports from China - which is facing demand recession - and Russia and Ukraine, where major currency devaluation remains export-supportive. However, India, which must grow steel-making capacity to take care of future demand, can ill-afford large imports hurting domestic prices. The steel ministry's Joint Plant Committee reports imports during the April-February period took a leap of 67.3 per cent to 8.38 million tonnes (mt) when exports were down 11.2 per cent to 5.40 mt. This should be a wake-up call for the government to put a wall against dumping. The ridiculousness of the situation is underlined by JSW Steel commercial director Jayant Acharya, when he says: "Some secondary steel producers have made production cuts to venture into trading by importing steel from China and other countries." The market is getting deluged by imports when Indian steel consumption grew by a measly 0.6 per cent to 73.9 mt in 2013-14 and in the current financial year till February by three per cent to 69.21 mt. All this while, domestic industry constituents have been commissioning new capacity.

The import threat is not to disappear soon. Flat demand and price falls led to world steel capacity use falling to 76.4 per cent in 2014 from 78.4 per cent in the previous year. China, which accounts for half the global production, is feeling increasing heat in the domestic market, forcing it to ship as much as possible in the world market. At the same time, steel groups in Russia and Ukraine are seeing their profits grow almost entirely on account of dollar-denominated exports. In the past 14 months, the Russian rouble and Ukrainian hryvnia have lost considerable value. While weak currencies remain the bane of the economies and people of the two former constituents of Soviet Union, devaluation has made local steel mills world-beaters. As balance sheets of most steel companies in Russia and Ukraine will show, their profitability is back to the pre-global financial crisis of 2008-09, if not more. This has become possible as the mills in Russia and Ukraine are paying most of their costs from wages to energy to transportation and logistics in their respective currencies but their income from exports is in the dollar and euro.

A Morgan Stanley report says the earnings before interest, tax, depreciation and amortisation of Russian steel leaders such as Severstal and Novolipetsk Steel is around 30 per cent.

Steel Authority of India Limited chairman Chandra Shekhar Verma says: "We have to be on guard against the likelihood of Russia coming under further pressure to export steel as the country's economy, subject to sanctions by the US and Europe and low oil and gas prices is forecast to contract by four per cent in 2015. I'm seeing reports that Russian domestic steel demand might contract by five per cent or more, which will automatically translate into mills going all out to boost export sales." In confirmation, ArcelorMittal chief financial officer Aditya Mittal says: "The Russian economy is in recession, which means lower domestic consumption, which means more tonnes to export." Russia and Ukraine between them exported 46.4 mt in 2014 and that accounted for 16 per cent of global steel exports. An official of consulting firm CRU wonders whether Russia and Ukraine are "becoming a new China in export markets, not in terms of volume but in terms of their impact on prices."

That there will be no remission in China's steel export thrust this year became evident in January, when exports, beating all forecasts rose 1.2 per cent to 10.3 mt month-on-month. This came on the heels of the country raising steel exports by 50 per cent to 93.78 mt. The ferocity in the export push is to be seen in the context of Chinese steel consumption in 2014 falling for the first time in 30 years. Verma draws attention to "prime minister Li Keqiang's message to the National People's Congress, suggesting growth of 'about seven per cent this year' on the back of the slowest growth in nearly a quarter century of 7.4 per cent in 2014. When Li said economic difficulties could be more formidable than in 2014 and downward pressure on the economy was intensifying, the portent for the country's steel industry could not but be ominous." As for any improvement in Chinese domestic steel demand, much will depend on the fiscal boost Beijing will give to the house building and manufacturing sectors.

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