Posted on 10 Nov 2020
Billets exports touched about 4.70 million tonnes (mnt) in the first six months of the current fiscal of 2020-21 and it is estimated that the second half may record export volumes of around 2 mnt.
Data from financial year 2013-14 reveals that China did not habitually buy billets from India and it was only in the exceptional year of FY 2020-21 that it hogged the lion’s share in this pie, at 2.87 mnt. But, going forward, how will the scenario unfold?
Industry players SteelMint spoke to are wary of the momentum sustaining because of rising domestic demand and other factors.
China to the rescue
SteelMint data shows that 58% of India’s total steel exports was contributed by China alone in the first half of April-September'20 (H1) and the major portion of the overseas sales happened in the first quarter (Q1) of April to June when there was no domestic demand. China, on the other hand, had emerged from the pandemic by then (COVID-19 had ravaged the country mainly in December 2019 and January 2020) and was trying to kick-start its economy with stimulus measures mainly aimed at infrastructure and construction which warranted the humongous appetite for billets.
Therefore, May and June were the primary months of high billets sales to China from Indian mills. Sales of long products were particularly lagging till September at home because construction was yet to take off with many locations still within containment zones. JSPL was perhaps the quickest to move into this space around May, swiftly followed by the other major players.
Indeed, the frenzied exports activity seen in the first three months of FY21 was also on account of many mills wanting to clear their inventories with domestic demand stalled and an uncertain future staring at them at that juncture. Steel being an essential commodity, the plants had to keep running.
“Most of the exports in Q1 comprised billets because China at that time, in a bid to kick-start the economy had adopted stimulus measures especially in infrastructure and construction. Billets are used in downstream construction products like TMT bars, wire rods etc,” recalled an industry source.
Outlook
Going forward, SteelMint’s assessment is that the second half (H2) of the fiscal will not mimic H1, exports of billets will not exactly fizzle out either. Volumes are expected to touch 1.8-2.0 mnt over Oct 2020-Mar, 2021 (H2). SteelMint’s view is that RINL, a long products player, will continue to export till March otherwise the PSU may find it an uphill task to keep all its three blast furnaces running. Thus, it is expected that RINL’s exports will be in the range of 1.0-1.25 lakh (+/- 10%) tonnes. That apart, 70,000-odd tonnes of regular export trade happen anyway, which will take the volumes up to around 2 lakh tonnes. Add to that some west coast mills, especially induction furnaces, which are also exploring exports, and their overseas sales will comprise at least another 30,000-50,000 tonnes, taking the overall total to around 2.5 lakh tonnes per month.
There could be some orders pending that will get delivered in November that could take the volumes up to around 4.5 lakh tonnes. However, December has not seen too many mills having booked shipments, which could keep the figure low at around 2 lakh tonnes. “So, may be, we can take an average of 2-2.5 lakh tonnes per month from December to March,” said an analyst.
“We feel, even if domestic demand improves, RINL will continue to sell 1.0-1.25 lakh tonnes per month and the balance would be from other mills. For instance, SAIL’s consignments to Nepal, irrespective of market conditions, are quite regular. A volume of 70,000-89,000 tonnes happen in regular trades. JSPL’s strategy is to keep very limited allocations for exports. It is not looking to export billets at this juncture because margins are not so high,” added the analyst.
Business-as-usual
Corroborating this view, market sources said the billets exports levels seen in H1 will not be replicated in H2 or even next fiscal but fall back to their business-as-usual levels. The reasoning is that first, there will likely not be any further lockdowns that could again warrant a serious look at overseas sales. Obviously, it would be the last option for the government.
Secondly, industry insiders are looking upon 2020 as an exceptional case which cannot be compared with any preceding year. And the business-as-usual export levels for mills are 10-20% of their total sales, although this ratio does vary across mills. For instance, at JSW, more than 80% of its sales are in the domestic space. Mills with higher capacity levels, like JSW, Tata Steel, Tata BSL, usually allocate 16-18% of their total production for exports, although for SAIL it is around 13%, and RINL, 13-14%, it is learnt.
Thirdly, while there are only 4-5 major and primary producers in India in the HRC space, induction furnace players are very strong in billets and they too had resorted to exports during May-June. But, their attention has turned towards domestic, sales being strong now.
But, going forward, a trader said, “At this juncture, it is difficult to hazard a guess as to what would happen in the next three months. We expected that till mid-November, the domestic market would remain firm but, post-Diwali, turn a bit soft, which would again create opportunities for exports. But, it does not look like there would be notable exports of billets, because domestic market will stay strong till December.”
Looking at the very short term, another trader said: “Long-term contracts that need to be executed will get delivered. Otherwise, mills would prefer to stay away from billets exports in the next 2-3 weeks’ time.”
Indeed, a steel industry veteran said, with the steel consuming sectors looking up, exports of HRCs and certain value-added products like wire rods and plates will happen in Q3, not necessarily so much of billets, which would be channelled into the domestic market.
Pricing
Domestic prices are showing an uptrend. November saw a price hike of INR 1,200-1,300 effected across all product categories. Raw material prices have been rising on scarce supply, especially from Odisha. The steel price hike increase is not just supported by domestic demand but a function of high raw material prices too.
At present, there is a difference of $30-35 per tonne in favour of domestic sales across products, fetching the mills at least USD 30-35/tonne more, strengthening the case for a stronger domestic focus. Billets exports prices are hovering around $420-425/tonne fob.
But, of course, there can be exceptions. For players like RINL, located on the coast, selling even at $420/tonne fob would give it higher realisations compared to mills located in the hinterland – like SAIL, Bhilai or even JSPL, Raigad. For the port- based players, their freight cost, when delivering to demand centres in the northern market, will be higher and they may find it more viable to export rather than sell within the hinterland.
Where costs are concerned, a mill located in the coastal areas will have to bear only the inside plant handling charges of around $8/tonne. But for a player like JSPL located in the interiors, apart from the $8 handling charges, there would be an additional freight of INR 800-1,000 per tonne or $15/tonne to send the billets from Raigad to the nearest port. JSPL, it is learnt, does sell some value-added billets to some of its regular customers in South East Asia, in small batches of 15,000-20,000 tonnes. But it is a matter of choice for JSPL and depends on the net sales realisations (NSR).
Will China buy from India?
Will China keep on importing such huge quantities from India? Again, doubts are being cast on this aspect too. This Asian giant’s steel demand is growing in double digits. Consumption of steel has gone up a healthy 15% in September y-o-y.
Its crude steel production has already increased 8-9% and this momentum will sustain. Industry players feel China will continue to source its billets but from other geographies like Iran and CIS countries but not particularly from India.
Because, for Indian mills, higher domestic demand and prices are replacing the need for overseas sales, at least over the next few months.
-- By Madhumita Mookerji
Source:SteelMint
