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India may stay net exporter of steel in FY14

Thursday, 9 January 2014 - 11:26am IST | Agency: DNA
Subdued domestic demand, favourable currency exchange rate main reasons for surge in exports.

India has become a net exporter of steel during the first nine months of current fiscal after a gap of six years and experts said the trend will continue this fiscal  unless there is quick recovery in domestic demand.

India exported 4.14 million tonne (mt) steel in April-December, a 9.5% on-year growth.

Weak exchange rate, subdued domestic demand and higher availability of steel post capacity additions were some of the key reasons for this.

Experts, however, said this did not indicate any structural change yet as most steelmakers wanted to ship excess stocks.

“The trend is welcome, especially if it can be sustained on a long-term basis with products adhering to international quality norms. In any case the differential between exports and imports to the tune of 0.04 mt during April-December 2013 isn’t very large and, therefore, not good enough reason to be euphoric as yet,” Ashima Tyagi, senior consultant with Infraline Research said.

A Tata Steel spokesperson said it is important for a country to direct its steel in nation building in the development stage and hence it should focus more on domestic market.

While steel players like JSW Steel, Essar Steel and Steel Authority of India took a visible advantage of sharp rupee depreciation over August September and aggressively increased their exports, Tata Steel chose to focus on the domestic market.

Tata Steel would continue to focus more on domestic market and maintain a steady niche presence in markets in Nepal, Bangladesh, Sri Lanka, Thailand, Vietnam and Middle East. “The percentage is unlikely to go beyond 5% in the near term,” the spokesperson said.

An analyst from local brokerage said Tata Steel could have expanded its volumes by focusing on exports, but they don’t seem as aggressive and as flexible as JSW Steel, which exported in smaller quantity of 1,000 tonne. The company which had clocked exports of 1.9 mt in last fiscal is aiming for 3 mt this fiscal.

“JSW Steel is trying to export additional production embarked this year following capacity addition. Export opportunity has given a chance to steelmakers which were suffering from lower raw material scarcity to use their capacities in optimum manner,” Jayant Acharya, director commercial, JSW Steel said. Better capacity utilisation has helped JSW to reduce fixed cost, improve productivity and cash flow. Exports have also helped the company in natural hedging and locking margins.

The company has also added new markets including China, Japan, South Korea and US to its export basket in recent times.

There is no significant difference between domestic and international steel prices, especially after rupee recovered and become stable at 62 per dollar. According to Tyagi, for most Indian steel companies, the domestic market remains their first priority since margins are better. The Tata Steel spokesperson said export realisations are lower since exporters have to absorb the handling and inland transportation expenses.

Tyagi believes to sustain exports to a region, steel firms need to establish physical presence by setting international offices.

In the next two years India is expected to become net exporter on the likelihood of addition in steel producing capacities within the country. From 2015, India would see capacity addition of around 10 mt per year.

“Continuity of exports depends on incremental contribution over marginal cost aided by weak exchange rate. If domestic market does not pick up, Companies will have to look for alternate avenues to absorb the commissioned capacities,” the Tata Steel spokesperson said.

Till the domestic market picks up and becomes vibrant again, exports will support the overall volumes, Acharya of JSW Steel said.

Overseas push

For most Indian steel firms, the domestic market remains their first priority since margins are better

To sustain exports to a region, steel companies also need to establish physical presence

in other countries by setting international offices.

India exported 4.14 million tonne (mt) steel in April-December, a 9.5% on-year growth.

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