Posted on 16 Feb 2016
China needs deeper, faster steel output cuts, says JSW executive
China's plan to cut its
annual crude steel capacity by about 13 per cent by 2020 won't be
enough to revive an industry reeling under a slowdown in the world's
second- biggest economy, a top official at India's third-biggest
producer said.
"There's excess surplus, so they
have to cut production," Seshagiri Rao, joint managing director of JSW
Steel and chief financial officer for the group, said in an interview in
Mumbai. "Almost every country has taken one step or the other to close
its borders, but the import threat continues."
A
global glut has roiled steelmakers from ArcelorMittal, the world's
biggest, to Tata Steel and JSW in India as demand for the alloy in China
cools at a pace faster than the decline in production, spurring record
exports. The European Union last week introduced anti-dumping duties on
certain products from China and Russia for unfairly undercutting local
makers, while India earlier this month imposed minimum import prices.
Earlier
this month, China published a plan on its State Council's website to
trim the size of its annual crude steel capacity by as much as 150
million metric tons by 2020, or about 13 per cent of existing capacity,
which the China Iron & Steel Association estimates at 1.2 billion
tons. China's output, which accounts for about half the world's
production, fell last year for the first time since 1981.
"The
production cuts announced may not have any impact unless we see an
actual drop every month," said Goutam Chakraborty, an analyst at
Mumbai-based brokerage Emkay Global Financial Services. "Ultimately, if
China wants to export, they will. India is a big market and demand is
actually growing."
India's consumption rose 3 per
cent last financial year and demand is estimated to grow between 4 per
cent and 5 per cent annually, Rao said. While China's overseas shipments
dropped in January from a month earlier, the relief may be short-lived
as the decline may have been the result of slowing production before the
Lunar New Year holidays, when manufacturing typically eases, according
to Shenhua Futures Co.
India's biggest maker Tata
Steel, which swung to a loss of $US313 million in the quarter through
December, said on February 4 that imports from China, Russia, South
Korea and Japan have surged to all-time highs on the back of lack-luster
domestic demand, excess capacity and competitive currencies. They are
"distorting the demand-supply balance in many regions," it said in a
statement.
ArcelorMittal, which twice reduced its
profit forecast last year, said on February 5 that prices deteriorated
significantly as a result of excess capacity in China. JSW Steel
reported record quarterly loss in the October-December period.
Prices
of hot-rolled coils, the benchmark, traded at 26,750 rupees a ton in
India as of Friday, according to Metal Bulletin data. A 26 per cent
slump in 2015, the most since at least 2008, has dragged down the shares
of local steelmakers. Tata Steel has dropped 33 per cent in the past
year, while state-owned Steel Authority of India tumbled 52 per cent.
Luxembourg-based ArcelorMittal plunged 69 per cent in the same period.
Rao's JSW Steel advanced 5.6 per cent, outperforming rivals and the
benchmark index.
Fitch Ratings said last week that any meaningful improvement in profitability of Indian steel mills looks unlikely before 2017.
The
Indian government set floor prices for steel imports earlier this
month, making imported hot-rolled coils, for instance, at least 19 per
cent more expensive than local produce. After raising import taxes twice
last year, it also imposed a safeguard and an anti-dumping duty. Though
these measures helped imports to ease for a third month in January,
shipments were still 24 per cent higher in the 10 months through
January.
Such steps are likely to moderate
purchases and allow domestic producers to boost production, Rao said.
Incrementally, 10 million tons of additional capacity will come in
annually, while demand will grow at 4 per cent, he said. "So, there will
be intense competition within India and that will keep the prices under
check," he said.
Rao
expects imports into India to decline to about 6 million tons in the
financial year starting April 1, from a record of 11-12 million tons
this year. Exports from India have also been dwindling and the excess
products will also have to be sold in local markets, pressuring prices
further, he said.
"Unless China shifts to consumption from exports, the changes will take some time," Rao said.
