India turns net exporter of steel to China for the first time in years

Demand for imported steel surged after China faced domestic supply disruptions

Under Modi government, net imports of steel had gone down and there was an increase of steel exports from the country | Reuters Under Modi government, net imports of steel had gone down and there was an increase of steel exports from the country | Reuters

The COVID-19 pandemic and the nationwide lockdown may have disrupted domestic demand, steel manufacturers in India have been boosted by a surge in exports, especially to our neighbour China, even as border tensions have risen between the two countries. 

Between April and August, as domestic demand slumped, 60-80 per cent of the total steel produced by Indian companies was exported with China accounting for 45 per cent of the total steel exports, according to credit rating agency CRISIL.

“India turned net exporter of steel to China for the first time in several years, with 69 per cent of semi-finished steel and 28 per cent of finished steel heading there between April and August,” it said.

In the same period, border tensions between India and China have risen sharply following violent clashes in the Galwan Valley in Ladakh. India reciprocated by banning several leading Chinese smartphone apps and barred Chinese companies from participating in road projects and government contracts.

According to the World Steel Association, China was the largest steel producer in the world in 2019, with crude steel production of 996.3 million tonnes. India was the second-largest, with crude steel production of 111.2 million tonnes.

Between January and June 2020, while China’s steel production rose 1.4 per cent to 499.01 million tonnes, India’s steel production slumped 24.2 per cent to 43.13 million tonnes.

What’s driving this huge growth in Indian steel exports, especially to China, which is far ahead of India in terms of production?

While China is the largest steel producer, it imports much of the iron ore it requires to produce the steel. A supply disruption that led to a surge in iron ore prices hit Chinese companies hard. 

“For China, supply disruptions and elevated global iron ore prices led to higher steel imports in these months, given that it imports over 90 per cent of its iron ore requirement,” noted CRISIL.

Over the last few months, iron ore prices soared due to supply disruptions especially in Brazil and Australia, key producers of the raw material. From around $85 per tonne in April, iron ore prices topped $120 per tonne in August, due to the supply issues as well as a revival in demand in China.   Iron ore prices even galloped past coking coal prices for the first time in the past 25 years.

Demand for steel in China is massive, particularly for infrastructure development. But due to a surge in iron ore prices, Chinese companies, particularly port-based, imported semi-finished steel products and process them further, so that they could save on the higher iron ore prices.

“More than two-thirds of Indian semi-finished exports were to China in April-August,” it said. 

According to the China Iron and Steel Association, imports of finished steel, which account for around  1 million tonnes per month, also increased 20 per cent in the first half of the year.

This increased export demand helped key steel producers in India ride through the strict lockdown that India had imposed in April and May, said CRISIL. 

Helped by the exports, despite domestic demand plunging 38 per cent between April-August, overall crude steel production in India fell only 27 per cent. For the export-oriented steel manufacturers, production during this period fell only 20 per cent.

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