Steel companies are facing potential production cuts due to rising inventory levels, slowing demand, rising production costs, and a surge in cheap imports from China and Korea.

The rise in imports comes as domestic demand from the automobile and white goods sectors declines.

In the first four months of the fiscal year, finished steel imports into India totaled 2.69 million tonnes, compared to 1.57 million tonnes of exports, resulting in a trade deficit of 1.12 million tonnes. In July, steel exports fell by 14 percent sequentially to 0.30 million tonnes, while imports rose by 18 percent to 0.75 million tonnes.

“Imports into India continued at a brisk pace last month as global steel prices remained depressed due to weak demand,” said a steel company official.

“Using the free trade agreement, Japan and Korea are trying to book orders for slabs and blooms (semi-steel) affecting Indian steel industry adversely”, he added.

The landed cost of steel imports in the first week of the previous month was at ₹48,358 ($579) per tonne from China and ₹49,265 ($590) per tonne from Japan.

In contrast, the domestic steel prices were quoted at a premium of ₹51,050 a tonne.

Interestingly, it is not just the steel companies but also traders who import steel and sell it in the domestic market who have been caught off guard.

The sharp fall in prices have eroded the profit margins of traders, as the prices have fallen before the shipments could arrive from China in 45-60 after booking, sources said.

Aamir Makda, Commodity & Currency Analyst at Choice Broking, noted that steel prices have been on a downward trend for four consecutive months, with a three per cent drop reported last month.

The current spot market prices are at about ₹41,700 a tonne due to increase in steel imports.

India’s steel production increased by 6.8 per cent to 12.3 million tonne in July,while imports rose sharply so far this fiscal, he added.

The cheap imports has put pressure on the Indian steel companies’ ability to pass on rising cost.

The steel industry is already reeling under cheap imports even while the cost of production has gone up with additional levy imposed by few mineral rich states after the recent Supreme Court verdict.

EXPORT SHRINK

Steel companies are facing a big challenge on the export front, as most of the major importing countries such as Malaysia, Turkey and Vietnam initiating investigation into imports from India.

While it will take time for these countries to finish the investigation and levy trade barriers, buyers will start cutting down their imports from India on fear of facing their government wrath, said trade sources.

Barring India and Europe, leading steel producing hubs are expected to witness anaemic steel demand in 2024, according to ICRA Research.

This has not only impacted the global steel prices but will also keep India’s competition with Chinese steel producers elevated in India’s key export destinations like Europe, West Asia, and Southeast Asia, it added.