Weathering the perfect storm?

While the steel sector is currently walking a tightrope, the medium-term outlook remains steady.

BY TALOTMA LAL

The global steel industry faced a highly volatile market in the first half of 2022 due to various factors including geopolitical conflict, raw material costs and supply chain constraints.

The war between Russia and Ukraine has impacted raw material prices and availability. Europe is experiencing inflation at an all-time high, indicating economic instability. China, the global leader in steel production, is also struggling, following a series of COVID lockdowns in major cities like Shanghai and Beijing.

Nonetheless the medium-term outlook is stable with a projected growth of 3.13% for the global steel market, which is expected to reach US$ 1.05 trillion by 2027 (Research & Markets), led by growth in end-user industries and technology-led improvements in production.

World steel production & demand

World crude steel production for 64 countries was 158.1 million tonnes (MT) in June 2022, a 5.9% decrease YoY. As per World Steel Association data, India is the only country that registered positive growth (6%) in steel output during June 2022.

Major steel producing countries like China, US, Russia and South Korea have witnessed a fall in production in June. Russia registered the highest fall among top 10 steel producing countries (Table 3 and graph).

World Steel Association (WSA) Short Range Outlook April 2022 report has projected global steel demand in 2022 to be about 1,840.2 MT. Forecasting a growth rate of 2.2%, demand for steel in 2023 is estimated to reach 1,881.4 MT. TOP 5 STEEL PRODUCERS IN JUNE 2022

1. China 90.7 2. India 10 3. USA 6.9 4. Russia 5 5. S. Korea 5.6

Values in million tonnes

3 4

2 5

1

GLOBAL DEMAND FOR STEEL IN 2022 (PROJECTED)

Middle East

Central & 50.2 48.5 South America 44.6

Russia & other CIS (4) + Ukraine European Union (27) & UK

161.5

1,313.1 39.1

Asia & Oceania Africa

141 42.3

USMCA Other Europe

Source: World Steel Association; Values in million tonnes

Indian steel industry: From inflation blues to oversupply woes

Steel production in India remaines stagnant on a month-on-month basis in July 2022 at 9.97 mt, down 0.7% year-on-year, after the imposition of export duty on steel in May this year, thereby leading to oversupply. Low global demand and a drop in iron ore prices contributed to the stagnation in the sector on a m-o-m basis.

Cold-rolled coil (CRCs) prices were down by Rs 2,650/ tonne (4% m-o-m), now in the Rs. 65,35066,500 per tonne range for August deliveries. Similarly, Hot Rolled Coil (HRC) prices declined by 3-4% M-o-M, and were in the range of Rs. 58,000–59,000 per tonne; amongst the lowest so far in 2022. Rebar prices stood at Rs. 56,900 per tonne, down by 3-4% m-o-m.

A decline in export orders has been witnessed since May 2022, consequent to the 15% export levy on a number of finished steel products. Key markets like West Asia, Europe and Vietnam have seen less bookings for Indian Hot Rolled Coil (HRC).

India’s finished steel exports fell by 75% yoy in July 2022 due to the combined impact of the export duty, seasonal weakness in demand and global slowdown. This was the fourth straight month of decline in exports of Indian steel. Around 380,000 MT were exported in July, while imports were recorded at 444,000 MT, making India a net importer.

However, alloyed steel (with no export duty levy) and stainless steel exports defied the trend and saw a 33% rise m-o-m and a 72% leap y-o-y, respectively. According to data from the Ministry, 223,000 tonnes of alloyed/stainless steel exports were recorded in July 2022. In June 2022 it was at 168,000 tonnes. IRON & STEEL EXPORTS FROM INDIA

2000

1500

1000

500

0

1,624 1,758

JAN FEB

1,901 1,786 1,817

1,434

MAR APR MAY JUN

Source: Ministry of Commerce & Industry; figures in US$ million

The larger picture

• Steel companies in India are expecting a significant margin correction in FY 2023. • India’s finished steel exports are expected to decrease by 25% y-o-y in FY 2023. However export of semis is likely to increase by 40% yoy in the current fiscal. • Indian steel mills have announced large scale expansion plans, which

would lead to capacity increasing by 40 million tonnes per annum (MTPA) during 2022-2026. • Global steel market is projected to post a CAGR of 4.1% to reach 2.2 billion MT by 2026. • With expected invesments in infrastructure, domestic steel demand is expected to increase at a CAGR of 10% till 2026. Sources: Media reports, EXIM India, ICRA, Research & Markets, Global Newswire, World Steel Association