Domestic market steel absorption capabilities brighter than earlier

By: | Published: October 30, 2018 2:00 AM

HRC price in the domestic market of USA which was ruling at $ 716/t in March’17 (the month of duty imposition) is now available at $ 918/t, a rise of 28%.

HRC price in the domestic market of USA which was ruling at $ 716/t in March’17 (the month of duty imposition) is now available at $ 918/t, a rise of 28%.

Amidst a good deal of global trade frictions in steel industry causing uncertainties in the growth and development of some of the large steel exporters like Japan, South Korea, Russia, Ukraine and Turkey, the world Crude steel production at 1.347 billion tonnes showed a 4.7% rise in the first 9 months of 2018 as compared to last year. The global capacity utilisation has moved up from 72.3% in the month of March’17 to 77.5% currently. Although monthly global consumption and trade data on steel are not available, it is safe to conclude that domestic market absorption capabilities have been brighter than earlier to warrant the current production growth. This is more than justified by reasonably high domestic prices effective in various countries.

Following the imposition of additional duties on steel and aluminium by USA under section 232, the domestic prices in US market have gone up substantially (average transaction by 30%) in the past one and half year. HRC price in the domestic market of USA which was ruling at $ 716/t in March’17 (the month of duty imposition) is now available at $ 918/t, a rise of 28%.

Similarly the CRC price at $ 948/t in March’17 is currently available at $ 1034/t rising by 9.1%. The domestic price of HDG sheet at $1122/t currently exhibits a growth of more than 12% during the last 18 months. The capacity utilisation in US mills has gone up by minimum 5-6% during the period.

In comparison, EU (North) domestic price of HRC which was Euro 565/t in March’17 is currently ruling at Eur 557/t, a rise of (-) 1.5%. CRC in the domestic market of EU available at EUR 665/t in March’17 is currently available at EUR 632/t, a growth of (-) 5.0%. However, as dollar is getting strong with the revival of US economy, the dollar denominated prices of HR Coil in Northern Europe shows a rise of 3.7% and CRC exhibiting more or less no rise during the period.

Similar comparison indicates that Chinese domestic price of HRC available at RMB 3285/t in March’17 is currently ruling at RMB 4190/t, a rise of 27.5%. HDG price (Hot Dip Galvanising) in China at RMB 4940/t in March’17 has moved up to only RMB 4975/t in October’18, a rise of 0.7% in the last one and half year.

In terms of dollar there is a negative rise in some of the products. For India the price rise in HRC in the domestic market at Rs 42,890/t (ex-works w/o VAT) in March’17 is currently ruling at Rs 46,500/t (Ex-works w/o GST), a rise of 8.5% during the period. The fall in exchange rate from Rs 65.5 per dollar in March’17 to the current level of Rs 73.4 has made the increase negative.

The spread between US domestic price and prices ruling at other major markets like EU, China and India is significant and even after imposition of 25% duties; some of these categories from EU, India and Turkey would still be competitive in US market. This is a very special scenario.

In cases of AD, CVD and SD imposed by the affected country, the injury aspect is supposedly fully taken care of by the duties and it has been generally observed that in the post duty imposition phase, there is a substantial reduction of exports from those countries charged with causing injury. Similar scenario has emerged in USA.

While Japan is aggrieved by not getting exclusion, South Korea has entered into a truncated volume agreement. But EU has not yet found any solution and the reduced export regime with USA is continuing. For China, it is no less than a trade war, each retaliating on the other with no plausible solution visible in the coming weeks. India’s export of HRC to USA is already facing AD/CVD in addition to fresh imposts of 25% duty.

It is interesting to see that containment of exports of Japan, Korea, Turkey, Russia, to USA has reflected in the production performance of these countries. During the first 9 months of 2018 the crude steel production in Japan, South Korea, Russia, Turkey has grown by 0.4%, 2.0%, 0.9% and 0.9% respectively against the global average rise of 4.7%.

Exports from India and China have also gone down as compared to last year, however, the production growth in these two countries have observed one of the highest rise during the period.

It appears that while USA in the last 18-20 months has improved its GDP (2.9%), CAD (currently – $442.8 bn), there is no relief on account of Industrial production( 4.9%), unemployment rate ( 3.7%).

The rate hike (currently 3.23%) in USA resulting in a jerk up reaction in the emerging economies including India in terms of lower FDI flows and FIP outflows causing a downward trend in Sensex are some of the outcome of US revival.

The global economy must be able to withstand these challenges as fallout of US trade actions with differential economic strategies by individual economy including India. It provides export competitiveness of Indian steel, but the export size of the market is getting restricted.

  • The writer is DG, Institute of Steel Growth and Development

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