China, a global leader in metal production, particularly in steel and aluminium, is facing economic challenges that have far-reaching effects. Producing over 1 billion tonnes of steel annually, China dominates with more than 50% of the world’s crude steel production. However, with its slowing economy, the steel industry is feeling the impact. This, in turn, is affecting steel prices globally, including in India, where domestic steelmakers are grappling with cheap Chinese steel imports.
Economic Woes in China Slow Steel Consumption
For years, China’s rapid industrialization, large infrastructure projects, and housing sector growth drove immense demand for steel. However, the country’s once-booming automobile and real estate sectors have significantly slowed down, with no immediate signs of recovery. This reduction in steel consumption is now creating an oversupply of steel in the country.
The Chinese government has been trying to revive the economy through various measures. Recent efforts include cutting the Reserve Requirement Ratio (RRR) by 50 basis points and encouraging financial firms to seek support from the People’s Bank of China (PBoC) to buy stocks. Despite these interventions, the oversupply of steel continues, resulting in declining prices.
Falling Steel Prices in China Lead to Increased Exports
China’s weakening steel demand has caused a significant drop in steel prices. In January 2024, the price of hot-rolled coil (HRC) stood at $565 per tonne, but it has since dropped to $441 per tonne. Rebar prices have also seen a steep decline, falling by $102 per tonne to $473 per tonne.
In response to the falling domestic demand, China has ramped up its steel exports, with a 20% increase in steel exports so far this year. The oversupply and aggressive exporting strategy are not only lowering steel prices worldwide but also making Chinese steel highly competitive in markets like India.
Impact on Indian Steel Industry: Lower Prices, Increased Pressure
In India, the demand for steel is strong due to the country’s growing infrastructure sector, a resurgence in the construction industry, and a buoyant automobile sector. Despite this, Indian steel companies are feeling the pressure from the influx of cheap Chinese steel.
The price of hot-rolled coil in India has dropped by ₹2,700 per tonne, while rebar prices have seen a reduction of ₹5,000 per tonne. Additionally, NMDC, a key player in India’s iron ore industry, has announced a reduction in iron ore prices, further affecting the domestic market.
Cheap Chinese Steel Undercutting Domestic Producers
Even with strong demand, Indian steel manufacturers are facing significant challenges due to the availability of cheaper alternatives from China. The price-sensitive Indian market is leaning toward Chinese steel imports, pushing domestic prices down and squeezing margins for local companies.
Raw material costs have also softened, with cooking coal prices falling by $30 to $180 per tonne. While this provides some relief to production costs, it is not enough to counteract the downward pressure on steel prices caused by China’s aggressive exporting of low-cost steel.
Indian Steel Companies Concerned Despite Market Growth
Indian steelmakers are in a tough spot. On one hand, the country’s economic growth, construction boom, and automotive resurgence provide a strong foundation for steel demand. On the other hand, Chinese steel imports are undercutting domestic prices, making it harder for Indian companies to maintain profitability.
The balance between growing domestic demand and the influx of cheap steel from China remains a major concern for Indian steel producers, who are hoping for relief as global markets stabilize.
