Posted on 14 May 2021
China’s export rebate cancellation on 126 steel products will slow the pace of Chinese steel exports and benefit Indian steel mills, says credit rating agency ICRA.
China’s steel exports rose 24% on-year in the first quarter, partly aided by a lower base and improving demand from other geographies. Another key reason behind the export growth momentum was market expectations of a cut in export rebates by the Chinese government to rein in steel production, ICRA observes. This is a move aligned to meet its long-term carbon neutrality targets.
“Given the strong demand, export rebate cuts, the Chinese Government’s intent to keep steel capacities under check and stricter production curbs imposed in the Tangshan region (which accounted for about 14% of China’s crude steel production in CY2020), China may not have excess steel volumes to divert to export markets,” says Jayanta Roy, Senior Vice-President & Group Head, Corporate Sector Ratings, ICRA. “As a result, international steel prices are expected to remain buoyant in the near term, which in turn would support India’s steel prices.”
China’s domestic hot rolled coil prices were close to $900/tonne at end-April, while its export HRC prices stood at $915/t. Without the export rebates of 13%, there would not be any major incentive for Chinese steel mills to export in large quantities at these prices, ICRA comments. India’s export HRC prices were trading higher – at $950/t – than Chinese prices on 1 May, with Indian steel exporters earning better realisations in the export markets than close to $900/t earned in the domestic market.
“In the current scenario of a moderation in demand in India due to the second wave of Covid-19 and consequent business lockdowns, Indian steel mills would be able to offload large steel volumes to export markets and still remain highly profitable,” ICRA says in a report sent to Kallanish.
“While long steel products would continue to dominate India’s consumption growth story going forward, a favourable international market environment for export of flat products amidst domestic demand slowdown augurs well for Indian steelmakers in the near term,” Roy concludes.
Source:Kallanish
