Not Just Inflation, Fourfold Increase In Steel Exports In Five Years Pushed Up Steel Prices

India’s steel exports increased almost four-fold from 5.59 million tonnes (mnt) in financial year (FY) 2016 to over 20 million tonnes mnt in Fy-22.

Representational Image (Picture Credit: Pexels)

It isn’t uncontrolled inflation that forced the Narendra Modi government’s hand in going for a steep rise in duty on the export of Steel. While many feel the government was worried due to rising steel prices, something that was having a negative impact on the domestic real state and construction sectors, another equally significant reason for the government’s decision is the fact that in the last five years, India’s steel exports increased almost four-fold from 5.59 million tonnes (mnt) in financial year (FY) 2016 to over 20 million tonnes mnt in Fy-22.

According to SteelMint, India’s steel exports have increased almost fourfold since FY’16, from 5.59 mnt to over 20 mnt in FY’22. India has been increasing its engineering and steel exports over the last two years and has the potential to become part of a larger global supply chain.

Source: SteelMint

The ongoing war between Russia and Ukraine has made things difficult. The two countries together account for about 10-11 percent of the global supply of coking coal, a key input in the steel industry. The conflict has disrupted the coal supply chain, leading to a rise in the price of steel in the domestic market. Export duty on steel will likely result in higher domestic supplies, thereby exerting downward pressure on prices. 

In a notification on March 31, 2021, the Central Government, in consultation with the RBI, retained the inflation target at 4 percent (with the upper tolerance level of 6 percent and the lower tolerance level of 2 percent) for the 5-year period April 1, 2021, to March 31, 2026. 

As per the latest government data, retail inflation has been hovering above 6 percent, which is the upper tolerance limit of the Reserve Bank of India (RBI)

On May 23, Metal stocks plunged as brokerages downgraded the sector after the Indian government imposed export duties on some steel intermediaries.

Jindal Steel & Power fell 15 percent, the most since January 2008, Tata Steel was down 12 percent, the most significant drop since August 2015, JSW Steel 11 percent, it’s the highest loss since May 2020 and SAIL was down 11 percent, the lowest it has been since May 2020.

NMDC was trading 10 percent lower, its biggest fall since August 2020, Vedanta was down 6 percent, and Hindalco Industries 5 percent. The BSE metal index was down nearly 8 percent, its biggest fall in two years.

According to experts, the construction cost in India constitutes about 20-30 percent of the value of the property. In the last couple of years, the cost of various construction commodities has risen by at least 50 percent, while some items have become expensive by as much as 100 percent.

There are many reports, including by real estate consultants which suggest that the housing prices are moving up due to a surge in demand.

Recently, The Confederation of Real Estate Developers’ Associations of India (CREDAI), a body that represents real estate developers contemplated a ‘stop work’ in the state due to rising construction costs.

According to India Brand Equity Foundation (IBEF), in FY22 (till January), the production of crude steel and finished steel stood a 98.39 MT and 92.82 MT, respectively. 

According to CARE Ratings, crude steel production is expected to reach 112-114 MT (million tonnes), an increase of 8-9% YoY in FY22. The consumption of finished steel stood at 86.3 MT in FY22 (till January). Between April 2021-January 2022, the consumption of finished steel stood at 86.3 MT.

In January 2022, India’s finished steel consumption stood at 9.65 MT.

In FY22 (until February 2022), exports and imports of finished steel stood at 12.2 MT and 4.3 MT, respectively. In April 2021, India’s export rose by 121.6% YoY, compared with 2020. In FY21, India exported 9.49 MT of finished steel.

Source: India Brand Equity Foundation (IBEF) 

On May 21, the government imposed hefty export duties on iron ore by up to 50 percent and some steel intermediaries by 15 percent in an attempt to preserve higher domestic availability and control rising prices.

To offer relief to domestic ultimate consumers grappling with high inflation, the government has cut down the import duty on coking coal and metallurgical coke as well as Pulverized Coal Injection (PCI) and anthracite coal.

In a statement, the steelmakers’ body, the Indian Steel Association (ISA), said that the industry welcomes the removal of import duty on coking coal and few other input raw materials. However, the imposition of export duty on steel will only send a negative signal to investors in the steel sector and will adversely impact the sector’s capacity utilization.