Steel-makers across the world, India included, are under siege by cheap steel imports from China, the world’s largest producer and consumer of steel. With a slowing economy hurting its domestic steel consumption, China has been dumping the excess production in other countries.
Between January and September 2015, Chinese steel exports rose 11 per cent to 11 million tonnes; while prices declined close to 40 per cent. A slump in the Chinese property market, the single biggest consumer of steel has taken a toll on domestic demand for the metal.
The result: the world’s big steel markets, such as the US, European Union and India, have been flooded with Chinese imports. In India, for instance, after surging 71 per cent to over 9 million tonnes during 2014-15, steel imports rose a further 53 per cent in the June 2015 quarter.
A chunk of the domestic steel demand, which grew 4 per cent during 2014-15, followed by 7 per cent in the June quarter, was therefore met from imports. This, in turn, kept the realisations of Indian steel companies under pressure.
While steelmakers need to register a certain minimum level of production to sustain plant operations, sales volumes have not kept pace with the production. This has resulted in inventory piling up with domestic manufacturers.
The impact
This has impacted major steel-makers such as JSW Steel, Tata Steel and Steel Authority of India, all of which have seen their financial performance deteriorate in recent times.
After posting 7 per cent growth in revenues and a 20 per cent higher operating profit in the September 2014 quarter, JSW Steel reported four consecutive quarters of falling revenue and operating profit until September 2015, at the consolidated level.
The company’s operating profit per tonne of steel (India operations) shrank to ₹4,909 in September 2015, down 38 per cent from the same period a year earlier. It has been the same for Tata Steel, which posted four consecutive quarters of declining revenue and operating profit since the September 2014 quarter. During this time, the company’s operating profit per tonne of steel fell 18 per cent to ₹5,520.
Some relief
Steel-makers across the world have therefore been rallying for protection. The European Union imposed anti-dumping duties on some steel imports from China and Taiwan in March-end for six months.
The Indian Government too introduced small duty hikes in June and then in August, on certain steel imports into the country. More recently, a safeguards duty of 20 per cent was imposed on imports of certain categories of flat steel products coming from countries such as China, Korea and Japan.
While all this offers relief by way of bridging the gap between the price of domestic-made and imported steel products, the impact may be limited. The duty has so far been introduced only for 200 days. Also, while the duty should provide a buffer, with global steel prices continuing to fall, imports could remain a competitive threat.
What lies ahead
During 2014, world crude steel production grew 1 per cent to 1,665 million tonnes and steel consumption grew 0.7 per cent to 1,540 million tonnes. In China, while crude steel production inched up 0.1 per cent to 823 tonnes, consumption contracted 3.3 per cent to 711 million tonnes.
According to the World Steel Association, Chinese steel demand is expected to continue contracting — at an estimated 3.5 per cent in 2015 and 2 per cent in 2016. Given the gap between world steel demand and supply, the weakness in global steel prices is unlikely to disappear any time soon.