Corona-hit Chinese steel export prices to be further cut

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Published: February 25, 2020 8:19:38 AM

China has elaborate plans to get over the crisis and is taking all possible steps to bring back normalcy.

Corona, Chinese steel export prices, china imports, Indian exports, MSME units, Indian steel producersSteel imports from China was 1.4 MT in the corresponding period of the previous year which implies a lower dependence on China during the last one year.

The impact of Coronavirus on Indian industry is a much talked about subject now a days. In all likelihood the scourge is going to last till April’20, the period that would provide sufficient time for Chinese people at large to undertake travel to distant cities and get back to work. China has elaborate plans to get over the crisis and is taking all possible steps to bring back normalcy. The unprecedented spread of the crisis engulfing about 29-30 countries is the second global concern and casts a spell of uncertainty in the total elimination of the fatal virus.

Recent report shows that while Chinese toys, batteries, motors have long flooded Indian market and led to closure of many Indian manufacturers and also converting some of them as assemblers of Chinese goods in India, the country’s dependence on China for electrical machinery, other engineering goods including auto components, organic chemicals is significant and a temporary disruption in supply is expected and this may hamper Indian export of engineering goods using these inputs. As regards steel, although chinese export prices of steel (HRC, CRG and coated ) do influence Indian export realisation, imports from China of pipes (Chinese share 32.0% of total imports of this category in April-January’20), GP/coated products (Chinese share 14.3%), electrical sheets

(Chinese share of 15.0%) and alloy/SS (chinese share 37.0%) taking the total import volume at 1.12 MT (17.8% of the total imports) would affect the export of these items from India after necessary value addition within the country, adversely affect the merchant traders importing these items cheaply from China as well as a few OEMs importing these goods.

Steel imports from China was 1.4 MT in the corresponding period of the previous year which implies a lower dependence on China during the last one year.

As in production of alloy/SS and pipes, the presence of MSME units is significant; the supply curtailment from China would harm their interest and force them to look for alternate sources. Indian steel export to China is yet to commence. However China is the destination of Indian exports of minerals and iron ore (earlier years and not currently), organic chemicals, gems and jewellery and electrical machinery. China was till recently a large source of solar panels and currently these are available indigenously.

The shortfall in Chinese exports in steel, paper, leather, textiles and readymade garments in markets like Bangladesh, Myanmar, SE Asia, Vietnam, Sri Lanka, Nepal can be met up by enhancing Indian exports of these items. The exemption from electricity charges and local taxes and levies imposed on exports from India would make exports competitive in those markets and provide stiff challenges to China when it re-enters.

Chinese crisis would help Indian steel producers in terms of lowering of prices of merchant iron ore globally which would translate into similar trend in India. The current price of 62% Fe ore at FoB China at $90.15/dmut FoB China has already come down by 4.6% from $94.45/dmut ruling in early January’20. The current prices of prime quality low volume imports of coking coal is ruling at $159.5/t FoB Australia which is marginally higher than $152.5/t operating in early January’20.

The indigenous availability of ore concentrates in China has been cut down in the past two months and is not going to recover in another two months’ time. Similarly the local availability of coking coal which has been falling due to stringent compliance with carbon emission has borne the brunt of the latest crisis. Thus it can be safely concluded that while the domestic production and volume of imports of iron ore and coking coal by China would be significantly lower in Q1 of 2020, the resumption of economic activities by end of April’20 in China would spruce up Chinese demand for raw materials leading to higher prices (compared to Q1 prices) of iron ore and coking coal by Q2 onwards.

China imported around 1.07 BnT of Iron Ore in 2019 which is curtailed by minimum 25% in 2020. On same lines, the import of Prime variety low volume Coking Coal by China is likely to go down by 25-30% in 2020.
During the past two months China has not cut down steel production as majority of production is BF based. The eclipse of demand from the end using segments and stoppage of infrastructure investment is forcing China to divert fresh production to exports rather than enhancing inventories. The current prices of Chinese exports of HRC at $ 453/t fob Tianjin port of China is 8.5% lower compared to the price level in early January’20.Chinese export price of coated products currently ruling at $575/t FoB is around $5/t lower as opposed to the level existing in early January’20.

It appears that Chinese export prices of steel products would be further lowered from the current level to keep pace with the flow of fresh production with poor off take from the domestic end using segments like real estate, infra projects, automobile, engineering goods, consumer durables and capital goods. China has been supplying low priced steel plant equipments to Vietnam, Turkey, Iran, Saudi Arabia, India, Sri Lanka and S East Asia. After April’20, these items would be offered by China at very competitive prices.

(Views expressed are personal)

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