Feb 24, 2020
Coronavirus impact: Will disruption in China lead to a flood of stainless steel imports?

Even as the coronavirus outbreak in China has disrupted the demand-supply dynamics of nearly every commodity, the stainless steel industry in India may be staring at multiple outcomes.

“It is clear that the outbreak has already had an adverse impact on sectors such auto, pharma and white goods. It is going to be weeks, or months, before normalcy comes about,” said Vijay Sharma, Director, Jindal Stainless Ltd, the largest stainless steel producer in the country.

But when it comes to stainless steel, there could be different scenarios.

Like other sectors that are bracing for a shortage in spare parts, the stainless steel industry is also facing a similar prospect. “There are certain raw materials that we source from China. These include ferro-alloy and electrodes,” said Sharma.

The company is preparing for a scenario where spare parts from China could become scarce.

The import scenario

The most important scenario though would be the impact on demand and supply of stainless, and eventually on the prices.

Like in steel, China is also the largest producer of stainless steel in the world. In 2018, it produced nearly 27 million tons of stainless steel, about 53 percent of the world output.

This also means that China exports whatever it doesn’t consume. The country also exported to India.

“But there have been remedial measures (like duties) against Chinese imports since 2017, and that is why Chinese imports have reduced,” said Sharma.

In 2016-17, up to 45 percent of stainless steel imports to India came from China. “That percentage has come down dramatically,” added the senior Jindal Stainless executive who is in charge of national and international sales, corporate affairs and strategy, and business development.

But that doesn’t mean Chinese imports don’t find their way into Indian shores. “There is circumvention of Chinese imports from ASEAN countries, especially Vietnam,” said Sharma. India has a free trade agreement with ASEAN countries, and other nations such as Japan and South Korea.

In the first nine months of the present financial year, share of these FTA countries in the total stainless steel imports to India increased to 73 percent, from 26 percent in 2016-17. Overall, imports of stainless steel have increased by 40 percent over the same period.

Interestingly, the highest increase has been from Indonesia, where from imports to India have jumped by 73 times in the last two years, said Sharma.

The imports have had an impact on the financials of Jindal Stainless and its unit Jindal Stainless Hisar.

So what does the coronavirus outbreak mean? Will low economic activity in China mean that more stainless steel will hit the international market?

It may seem so, as China already produces more stainless steel than it consumes. “There is excess capacity of about 40 percent in China,” said Sharma.

Reports from China added that stainless steel inventories are at record levels.

But Sharma opines that this doesn’t necessarily mean that Chinese imports will flood the Indian markets. “At the moment, information from China is not clear. But if there is low economic activity, then there will be production cut too,” he added.

Chinese steel companies, for instance, are mulling production cuts as inventories pile up and raw materials become scarce.

It may take a few more weeks to understand the full impact of the outbreak on Chinese imports.

Advantage

At the same time, there could be one advantage for Indian companies.

Jindal Stainless, for instance, exports 20 percent of its production, mostly to Europe, South East Asia and Middle East. It competes with Chinese companies in these markets.

“If there disruptions in the stainless steel supply chain in China, then it is possible that consumers in Europe and other markets, will look at alternative sources,” said Sharma.

Source: Hellenic Shipping News