Mar 24, 2020
Steel companies might face tough competition as China raises steel export rebate to 13%

2020-03-25
MUMBAI: Indian steel mills are likely to face more competition from rivals across the border in China after Beijing sought to raise export incentives on the primary infrastructure alloy by a third to help cushion the impact of demand destruction at home and overseas.
The Chinese move to raise export rebates to 13% from 10% for a large number of steel products might also prompt some Indian steelmakers to seek higher border tariffs if imports were to surge now.
“Increase the export tax rebate rate of 1,084 products to 13%…includes steel products such as hot-rolled coil, wire rod, cold-rolled strip, hot-dipped galvanized strip and stainless steel strip,” showed an official letter from China’s ministry of finance and state administration of taxation, dated March 17.
The extent of competition and impact on pricing depends on the inventory pile-up in China, while the import percentage of steel from China has been reducing, said Indian Steel Association’s assistant general secretary, Arnab Kumar Hazra. “Thus, we need to wait and see if the imports surge,” he said.
Indian companies are more worried about Chinese prices getting even more competitive, affecting India’s exports.
“This move by the Chinese government will not just impact imports into India, but will have more impact on the international markets that Indians target, Many countries where we export might find China’s price cheaper. We need to focus on that,” said a spokesperson from ArcelorMittal Nippon Steel.
Steel companies have consistently raised prices until March and the commodity was trading at Rs 39,700 on the back of restocking demand from auto and construction companies. However, the companies may not further hike prices as the impact has resulted in international prices trading at a marginal discount.
“Prices had been hiked until March, but the demand is not strong right now. In fact, even before China’s announcement, demand was subdued,” said ICRA’s senior vice president Jayanta Roy.
Chinese exports to India and other countries have dropped to 570,000 tonnes of finished steel in February, as against 619,000 tonnes a year ago, as per a steel report by Kedia Advisory.
“Although higher rebates may see Chinese steel products gain some advantage in the foreign markets, the fundamental factor determining the vitality of Chinese steel exports for the immediate future is still demand, and the Covid-19 contagion is severely undermining consumer sentiment globally,”said Ajay Kedia, director at Kedia Advisory.
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