China’s May steel trade data show that the removal of export rebates is showing its effect. China's monthly steel exports declined 34% MoM to 5.3mt in May 2021.
China had announced to cancel the export tax rebates on 146 steel products. The aim was to discourage exports and increase supply in the domestic market. The exports remained unusually high in March and April. However, the new export rebate policy is showing its impact as Chinese exports have plummeted in May. And it is likely to fall further in June.
The Domestic Scenario
While China has curbed exports to boost its domestic supplies, global steel demand has reached unprecedented levels. It is primarily aided by the economic recovery. It presents an ideal scenario for Indian steelmakers as they are poised to fill the spot vacated by China in the export market.
The opportunity for Indian steel makers has come at a time when domestic recovery is delayed under the impact of the second COVID-19 wave. Rising international demand is an opportunity for Indian steelmakers to nullify the impact of dull domestic markets.
Indian steel producers are also estimated to add 32 mtpa capacity over FY2021-25E. On the other hand, China is looking to reduce its net production capacity. The capacity pipeline also remains lean across the globe. It places them strongly to cater to the rise in international demand.
Discount Gap Filling Fast
The international market scenario is certainly favourable for domestic steelmakers. Indian steel prices are still trading at a discount on Chinese products. Hence, they still have some room left to increase their prices.
However, prices of Indian steel products have increased significantly in the last few months, and the discount gap with international steel prices has significantly narrowed down. Hence, the window of taking further price hikes is narrowing fast for the domestic steel manufacturers.