China’s plan to cut its annual crude steel capacity by about 13% by 2020 won’t be enough to revive an industry reeling under a slowdown in the world’s second-biggest economy, a top official at India’s third-biggest producer said.
“There’s excess surplus, so they have to cut production,” Seshagiri Rao, joint managing director of JSW Steel Ltd and chief financial officer for the group, said in an interview in Mumbai. “Almost every country has taken one step or the other to close its borders, but the import threat continues.”
A global glut has roiled steelmakers from ArcelorMittal, the world’s biggest, to Tata Steel Ltd and JSW in India as demand for the alloy in China cools at a pace faster than the decline in production, spurring record exports. The European Union last week introduced anti-dumping duties on certain products from China and Russia for unfairly undercutting local makers, while India earlier this month imposed minimum import prices.
Earlier this month, China published a plan on its State Council’s website to trim the size of its annual crude steel capacity by as much as 150 million metric tonnes by 2020, or about 13% of existing capacity, which the China Iron and Steel Association estimates at 1.2 billion tonnes. China’s output, which accounts for about half the world’s production, fell last year for the first time since 1981.
Big market
“The production cuts announced may not have any impact unless we see an actual drop every month,” said Goutam Chakraborty, an analyst at Mumbai-based brokerage Emkay Global Financial Services. “Ultimately, if China wants to export, they will. India is a big market and demand is actually growing.”
India’s consumption rose 3% last financial year and demand is estimated to grow between 4% and 5% annually, Rao said. While China’s overseas shipments dropped in January from a month earlier, the relief may be short-lived as the decline may have been the result of slowing production before the Lunar New Year holidays, when manufacturing typically eases, according to Shenhua Futures Co.
India’s biggest maker Tata Steel, which swung to a loss of $313 million in the quarter through December, said on 4 February that imports from China, Russia, South Korea and Japan have surged to all-time highs on the back of lack-luster domestic demand, excess capacity and competitive currencies. They are “distorting the demand-supply balance in many regions,” it said in a statement.
Record loss
ArcelorMittal, which twice reduced its profit forecast last year, said on 5 February that prices deteriorated significantly as a result of excess capacity in China. JSW Steel reported record quarterly loss in the October-December period.
Prices of hot-rolled coils, the benchmark, traded at Rs.26,750 a tonne in India as of Friday, according to Metal Bulletin data. A 26% slump in 2015, the most since at least 2008, has dragged down the shares of local steelmakers. Tata Steel has dropped 33% in the past year, while state-owned Steel Authority of India Ltd tumbled 52%. Luxembourg-based ArcelorMittal plunged 69% in the same period. Rao’s JSW Steel advanced 5.6%, outperforming rivals and the benchmark index.
Fitch Ratings said last week that any meaningful improvement in profitability of Indian steel mills looks unlikely before 2017.
The Indian government set floor prices for steel imports earlier this month, making imported hot-rolled coils, for instance, at least 19% more expensive than local produce. After raising import taxes twice last year, it also imposed a safeguard and an anti-dumping duty. Though these measures helped imports to ease for a third month in January, shipments were still 24% higher in the 10 months through January.
Under check
Such steps are likely to moderate purchases and allow domestic producers to boost production, Rao said. Incrementally, 10 million tonnes of additional capacity will come in annually, while demand will grow at 4%, he said. “So, there will be intense competition within India and that will keep the prices under check,” he said.
Rao expects imports into India to decline to about 6 million tonnes in the financial year starting 1 April, from a record of 11-12 million tonnes this year. Exports from India have also been dwindling and the excess products will also have to be sold in local markets, pressuring prices further, he said.
“Unless China shifts to consumption from exports, the changes will take some time,” Rao said.
source: http://www.livemint.com