Strong domestic demand, supported by government spending on infrastructure, building and construction segments, is expected to keep India’s steel imports elevated around the 6 million tonne (MT) mark this fiscal even as the global steel industry battles a slowdown.

Global steel demand, which has been subdued since the onset of the Russia-Ukraine conflict, is expected to grow 1.6% in 2023, after a sharp fall of 3.3% in 2022. However, the scenario remains suboptimal across key economies.

Indeed, even that tepid rate of growth rides largely on a buoyant 13% growth in demand in India, which has bucked the trend so far. This fiscal, the steel sector in India is poised to clock its third consecutive year of double-digit growth, at 11–13% on-year, after growing 11.4% and 13.4% in fiscals 2022 and 2023, respectively.

To be sure, demand in China, the world’s largest producer of the commodity, has started reviving after a three-year slump. However, oversupply has led to subdued prices. Over the past few months, Chinese mills have been facing margin pressure, mainly due to high raw-material prices and a depreciating yuan. Although the Chinese government is trying to keep demand afloat with infrastructure spending and relaxing policies on property ownership, real estate continues to be in a recessionary phase.

In the milieu, Chinese mills have started pushing volumes into the global market at highly competitive prices. Between January and November this year, exports from China have increased 35.6% to 82.7 million tonne — the highest since 2016. Chinese exports to India have also surged.

Strong growth momentum has supported steel prices in India, and import volumes have increased significantly, driven by better realisation opportunities. As of November this fiscal, India had imported 4.26 MT of finished steel, up 13.4% on-year even as its exports declined 6.2% to 4.03 MT, making the country a net importer of finished steel.

Says Sehul Bhatt, Associate Director, Research, CRISIL MI&A, “Last fiscal, steel imports were around 5.6% of domestic demand at 6.7 MT. We expect imports to be around 5.5% mark this fiscal, too. Although global prices increased in November, by 23% in the USA and 6% in Europe, a few domestic steel mills have cut prices by Rs 1,500 per tonne in December from the October list prices with an eye on local demand. That is likely to curtail imports in coming months.”

China has been the largest beneficiary of the uptick in imports, beating South Korea as India’s largest import partner. As per data available till October 2023, finished steel imports from China totalled 1.1 MT, up 47% on-year, closely followed by South Korea at 1.09 MT, down 15.9%.

Among the ports, Mumbai remains the preferred destination for both alloy and non-alloy imports, accounting for 40% of the total imports, followed by Mundra and Chennai. This imbalance of volume at the ports leads to regional disparities in domestic prices. For instance, although prices of flat products corrected across India in November, the fall in trader prices was more significant in Mumbai compared with other major domestic steel markets.

Robust domestic demand, weak global markets and competitive Chinese steel have led to limited exports despite a low base. Exports declined ~72% in September, 20% in October and 31% in November. Exports to UAE and Belgium were down 46% and 10.5%, respectively, though exports to Italy, Nepal and Spain increased 31%, 16%, and 71%, respectively till October.

Says Miren Lodha, Director, Research, CRISIL MI&A, “The recent recovery in European and American steel prices augurs well for Indian flat-steel producers. European steel prices, after remaining subdued for 5-7 months and hovering at €550-600, have started recovering since November, leading to a pick-up in export bookings from India. This follows a period where European steel prices fell below domestic steel prices for the first time in a decade.”