Steel exports fall again in June on levy, domestic demand stays weak

13 Jul 2022

Exports of finished steel products covered with recent tariff hikes fell sharply by 53% on the year to 638,000 tn in June, data compiled by rating agency, ICRA, showed.
 
The fall came on the heels of a 39% fall in the previous month to 749,000 tn. For the Apr-Jun quarter the exports were down 40% on the year to 2.13 mln tn.
 
The government imposed export duties of 15% on several steel products on May 22. This led to a fall in their exports, said Ritabrata Ghosh, senior vice president at ICRA, who is also of the opinion that the current financial year will witness a 25% fall in total steel exports.
 
The tariffs cover a range of finished steel products such as hot rolled coils and strips, reinforced steel bars, wire rods but left out semi-finished products such as billets and ingots.

The tariffs were imposed after the government got worried about rising steel prices in the domestic markets and their impact on domestic inflation and consumption demand.
 
The tariffs seemed to have had their desired impact. Following a sharp uptick in March and April, domestic steel prices witnessed a steep downtrend from the end of May which continued till the end of the June quarter, ICICI Direct said in a recent report.
 
Since steel prices are down 15% from around the time the government levy took effect in May, said Ghosh, it will be beneficial for domestic consumption and that would likely provide the impetus to a pick-up in the government's infrastructure spending pace post-monsoon.

But currently the domestic demand has not warmed up to the fall in steel prices even as exports have come under a cloud.

Going forward, the pace of steel exports will likely only slow a bit but the growth will still be there, say analysts. Domestic steel companies such as Tata Steel Ltd have depended on exports growth during times of sluggishness in domestic demand.

In 2021-22, Tata Steel’s export sales were 2.61 mln tn, accounting for 15% of total sales volume of 17.62 mln tn from its Indian plants, according to the company’s annual report.

In the June quarter, Tata Steel’s crude steel sales from its domestic plants declined 2.2% on the year, and 21% on the quarter, to 4.06 mln tn. It said this was “due to moderation in exports following the imposition of 15% export duty.”

The operating performance of steel companies in the June quarter is likely to have been lukewarm, according to analysts’ preview reports.

Most of the steel companies will report a sequential fall in operating profit in Apr-Jun led fall in steel prices, lower realisations on exports for part of the quarter, and impact of high coking coal prices, said brokerage IDBI Capital Services in its preview report.