EU welcomes India steel export duties: Correction

Corrects dates for price peaks in third paragraph

The European flat steel market expects that the newly imposed duties on Indian exports will aid prices in finding a bottom and stabilising.

The Indian government announced over the weekend that export duties will be applicable to a range of steel and raw materials as of yesterday. Hot-rolled coils, cold-rolled and galvanised coils will be subject to a 15pc export duty. It is not yet clear if there will be a grace period for fulfilment of old contracts, but some sources expect that all material for loading from yesterday will have a tax. Several market participants expect the measure to be temporary, lasting for a few months.

EU market participants had been looking for signals of Chinese steel prices reaching a bottom for weeks, as weakness in the region had resulted in aggressively low-priced Asian offers to the bloc. These offers were driving the decrease in domestic flat steel prices, and dampening sentiment for much of the remainder of year, on also sluggish consumption forecasts. Demand from the automotive sector has slowed, as auto production is stalled by supply chain issues, while other steel-consuming sectors are under pressure from an economic slowdown in the bloc. The Argus Italian HRC indexpeaked at €1,349.75/t ex-works on 23 March, but was at €996.50/t ex-works on 20 May. Similarly, the northwest EU index reached a high of €1,411.75/t ex-works on 24 March, but by 20 May had fallen to €1,043.50/t ex-works.

Buyers had for much of this month paused purchases, but sources expected that as May came to an end, there would be an uptick in buying activity. The duty may spur trading within the continent, as some buyers could become more nervous about their supplies. Imports of Indian HRC into the EU amounted to nearly 15pc of the total in 2021. This number stood at 19pc for CRC and 13pc for HDG, and considering the level of Indian offers to Europe over the past month, which were often the lowest, imports could increase.

An estimated 2mn t of steel were heard due to be exported from India, estimated several market participants. Some of these would have been agreed as global steel prices rose in the aftermath of the invasion of Ukraine in February, when many steel producers were able to increase profit margins. Sales concluded in that period would have more room for Indian mills to shoulder the 15pc export duty compared with any sales done as the market was on a rapid descent in April-May. Market chatter emerged today about potential order cancellations in cases where the transacted price was close $900/t cfr Europe or Middle East.

Today EU market participants said that although it is too early to understand what the impact of the news will be, the price decrease is likely to come to an end. "I can see the opportunity to stop the ongoing massive price reductions, especially by the EU producers, since in the last weeks [offers from] Indian mills were the lowest in the market," a market participant said. "It may be that EU producers, led by ArcelorMittal, could even try to increase current prices."

"[The news] should help a bit in new negotiations," another one said. "It feels that we're looking for bottom already, if not domestically, for import material."

"Obviously I think that today for potential new orders they can not keep prices as low as they used to," a trader said. "Some mills from Japan and Taiwan stopped offering for the EU today," another one added.

"I do expect some cancellations for fresh contracts; old ones with better prices have a chance," a third trader said. "HRC and HRP prices globally will get support and may reverse direction, subject to China," a market participant expects.

The news also has implications for Turkey and related markets, as India has become one of the largest suppliers of HRC to Turkish re-rollers. This can also trickle into more demand for Turkish HRC by export and domestic markets, and also see prices stabilise. But more recently, China has supplied the Turkish market, so no Indian steel cargoes were heard due to be loaded to Turkey.

Iron ore pellet squeeze?

India's new export duties on iron ore have the potential to add to cost pressures on European steelmakers.

A 45pc export duty has been imposed on iron ore pellets from none before, and a 50pc export duty on iron ore fines, concentrates and lumps from 30pc previously only for iron ore lumps. But in the near term, the impact will be more significant for Chinese mills.

Today offers on iron ore pellets and even previously agreed shipments were heard to have been withdrawn from the market, an international trader said.

In the aftermath of the conflict in Ukraine, European mills had turned to Indian iron pellets to make up for the slowdown in deliveries from Ukraine. But demand for Indian pellets in Europe has since eased after the initial spike in interest. Ukrainian producers Ferrexpo and Metinvest continue to produce iron ore at reduced capacity and have established more steady rail and barge export channels to Europe. Based on port data, the last Indian pellet cargo bound for Europe departed New Mangalore on 24 April, with Rotterdam initially pegged as a destination before the vessel eventually arrived in Turkey.

Still the presence of Indian pellets has grown in Europe, even prior to disruptions in Ukrainian seaborne exports. Italy has emerged as a notable importer of Indian pellets, with India exporting 332,284t to Italy between April 2021 and February 2021, compared with none in the year before, GTT trade data show.

By Lora Stoyanova and Siew Hua Seah