This is not always a very favourable situation as exports are usually margin dilutive, especially when the domestic currency is growing, said an analyst with an international brokerage.
This trend has already started showing signs in the domestic steel industry and experts say that there are chances that it may be more visible next year.
According to the data available from the Joint Plant Committee (JPC), Indias total steel production during April-January 2014 grew by 3.7% to 70 million tonnes (mt) against 67 mt a year earlier. During the same period, domestic steel consumption grew by a meagre 0.5% to 61 mt against 60 mt last fiscal.
Steel which is the backbone of major powerhouse sectors of the economy such as automotive, real estate, white goods like refrigerators and washing machines, construction of roads, highways, etc always grows at a 1.5 times rate of gross domestic product of the economy, when the economy is growing above 6%, said AS Firoz, chief economist at JPC.
However, whenever the economy slips below 6%, the growth rate of steel usually lags GDP by 1%, he said.
Assuming that post elections, even if the sectors pick up, the analyst said it cannot go beyond 2-3% growth rate. This essentially means the consumption in India will reach up to 82 mt in FY15 from the expected consumption of 80 mt in FY14
This will be in sharp contrast to over half of 14 mt of additional capacity which is expected to come up in the next fiscal.
This will be largely contributed by SAIL, which is expected to take its capacity up to 21 mt from the current 13 mt by FY16 end, Tata Steel, which is expected to add 6 mt to its current capacity of 10 mt, JSW Steel, also expected to add a minor 2-3 mt of capacity through debottlenecking and reaching 100% capacity utilisation to reach its rated output of 14.3 mt and JSPL, which will be adding 3 mt per annum at its upcoming facility at Angul. In fact, expectations are that Essar Steel, too, will be reaching a capacity of 10 mt from its current suppressed output of 5 mt per annum.
Domestic overcapacity, falling iron ore prices, rising Chinese exports and an appreciating Indian rupee put together constitute an almost perfect storm for the domestic steel sector in India. We calculate that 14mtpa of new capacity is likely to be added over the next two years; iron ore prices have fallen to nearly $105 per tonne (as on March 11 versus their high of $157 in February 2013) and the rupee has appreciated by 11% from its August 28, 2013, low of 68.8 against the US dollar, said an HSBC report recently.
This reflects that while the exports are now becoming less viable, at the same time foreign steel companies are reaching a position where they can economically export to India and make it tough for the home grown players.
This is largely going to impact mainly the big companies such as SAIL, JSW and Tata Steel, who had been banking heavily on exports to offset lacklustre demand in India.