Posted on 29 Mar 2021
A key likely policy change in China could have strong repercussions at Indian steel mills in a major way in April. The market is abuzz with speculations that the Chinese government would soon be implementing a reduction in the export rebate from 13% to 8-9% in a bid to discourage exodus of steel items from its shores. This likely policy change, if implemented, is plausible especially against the backdrop of production cuts initiated in China, in its ongoing efforts to curb pollution. The rumours have been gaining traction especially since the China Iron & Steel Association (CISA) has even alluded to the impending proposal.
Marketmen hazarded that the announcement will likely happen in the first week of April. But, importantly, this move will benefit other exporting countries, especially India, Russia and Turkey when their productions are in surplus after feeding domestic demand. Overseas user industries, on their part, will switch their importing countries if they get offers lesser than those emanating from China. This, in turn, would indeed be beneficial for Indian mills.
Key export markets for Indian mills
For India, in hot rolled coils (HRCs), the biggest markets are Vietnam, Middle East and Europe. Prices reigning for Europe consignments are lucrative at present, being higher than the domestic prices, at $900/t cfr ($850/t FoB) On the other hand, domestic HRC prices, exy-Mumbai, are ranging from INR 55,000-55,500/t which translate into around $764/t.
There is also expectation that the Middle East market will become active as it heads into the month of Ramzan from around mid-April, a period that sees hectic pre-bookings. "We expect Middle East players to book with Indian mills for April-end or May shipments," said a source.
Vietnam is also a good market for Indian mills although customers from this country have not booked in large volumes. But mills feel, if China tweaks the rebate policy, several buyers from Vietnam will switch over to sourcing from Indian mills, which have already hiked export offers to this Southeast Asian nation by $20-25/tonne week-on-week to around $810-815/tonne cfr.
Importantly, HRC prices and domestic demand both are high in China at present compared to longs. This trend is a consequence of production cuts in China, especially for HRC producers in the Tangshan region, which has reduced availability of the material, pushing up prices resultantly.
As per data, China's HRC exports have been showing a downtrend of 15% per annum with 2020 seeing the steepest drop at over 25%. Exports are being discouraged in favour of the domestic market there.
Subdued volumes in April
However, sources add that the overall volumes booked in April will not be as high as seen in end-February and March.
SteelMint had reported last month that March steel export figures will cross 1 mn t, since a lot of players had booked significant quantities in February. But, subsequently, mills have not exactly booked large volumes of cargo for April shipments.
There are a few reasons behind the thinning volumes. One, global freight rates have increased sharply over the last one month or so. As per SteelMint data, freight rates for iron ore pellets exports from India to China increased by $10-15 since early February due to lesser availability of empty vessels. Similarly, freight rates for billets and HRC exports from India have rallied. Billet exports freight rates have nearly doubled in the last 1-2 months.
For instance, say a mill was exporting at $680/t FoB. High freight rates have pushed up the prices to $750/t fob. Buyers have even accepted such high prices but are hamstrung by vessel scarcity. The mills, on their part, are seeing their margins getting squeezed because of the high freight rates. Consequently, they avoided booking significant quantities for April.
Secondly, even at such high rates, mills are not sure whether they will get a vessel or not. Reason for tight vessel availability is that crude oil prices are headed north, impacting freight rates. Brent crude prices breached the $70/barrel mark after a year of production cuts by oil producing countries.
Thirdly, Chinese ports are experiencing a great deal of congestion, increasing vessel turnaround time. Gradually, the tightness will ease but it will take some time, avers a source.
"High global freights rates, rising crude oil prices and congestion at Chinese ports have all conspired to impact steel exports from India in April, although mills have booked some cargoes. But these volumes will certainly be lower than that seen in March. Significant fresh bookings have not been seen," a source confided.
* by Madhumita Mookerji
Source:SteelMint
