A new opportunity for Indian steel: China’s decarbonisation

As China embarks on an aggressive decarbonisation drive, Indian steel makers face a great export opportunity! 

KeyTakeaways

• Steel prices have doubled in a year because of growing demand

• China has placed curbs on steel production, withdrawn export incentives and increased import duty

• This has created a big opportunity for Indian steel exporters

Steel prices have been on a tear -- prices of flat steel in India almost doubled in a year from Rs 38,000 per tonne to Rs 72,000 per tonne in June 2021. 

Many experts believe that the world is in the middle of a commodity super cycle (a sustained period of rising prices) and that steel prices will remain firm as the global economy rebounds and key markets like the US and China increase spending to drive growth. 

While the macro, long-term picture looks good for the steel industry, the immediate prospects are looking up, too. What has particularly cheered the Indian steel industry is the change in China’s steel export-import policy in May 2021. 

The country, as part of a decarbonisation drive, withdrew value added tax (VAT) rebates on exports of 146 steel products and cut import duty on semi-finished, crude and scrap steel.

With this move, China is disincentivizing exports and encouraging imports. This is creating opportunities for the Indian steel industry.

A deeper dive into China’s decarbonisation policy:

China has been taking a series of initiatives to reduce its steel industry’s carbon footprint. Its approach is three-pronged: 1) cut domestic production, 2) discourage exports and 3) encourage imports to meet the shortfall.

In March 2021, Tangshan, China’s largest steel-producing city, announced production restrictions of nearly 30-50% on its 23 mills. The move is part of the country’s drive to meet its commitment of achieving peak carbon emissions by 2030 and carbon-neutrality by 2060.  

The restrictions will dampen domestic supply – production is likely to drop by 30 million tonnes and is in line with the country’s goal of reducing steel output from the 2020 highs of 1 bn tonnes. 

With domestic supply being cut off, China will now have to look at imports to meet its demand. Which is exactly what it is doing. To address a potential shortage, the country suspended duty on imports of crude steel, pig iron and recycled steel among other products on May 1, 2021.

On the exports front too, China is creating opportunities for Indian steel. China withdrew the 13% VAT rebate offered on exports of 146 products, including wire rod, rebar and hot-rolled coil from May 1, 2021. In fact, Chinese steel exports fell to 5.27 mn tonnes in May (a 33% month-on-month fall over April). 

Industry watchers, this year, are expecting more policy measures to curb exports as Chinese steel prices remain at a deep discount to international prices.

The restricted supply of steel from China, along with the increase in tariffs on exports from the country is welcome news for Indian steel manufacturers who are quickly embracing sustainable practice while manufacturing steel. Demand from within China and around the globe is set to rise, which could help the industry thrive in India in the years ahead.

References:

1. (https://www.theweek.in/news/biz-tech/2021/06/15/steel-players-capitalise-on-increase-in-prices.html).