How China drives the fortunes of Indian steel, iron ore companies
It takes just one statement from Chinese authorities or a steep producers’ body in the country to change the dynamics and economics of Indian companies in the sector.
Prices of steel and iron ore in India have been volatile in recent weeks because of developments in China, which is trying to regulate the metal’s output. Moneycontrol looks at what Beijing has been doing in the sector, and why its moves are so important for India.
Why does China matter so much for Indian steel and iron ore prices?
China accounts for more than half of the global steel-making capacity and absorbs 75 percent of global iron ore imports. Therefore, any signal from China about its likely output of steel, or about the growth of its economy, has a direct bearing on global prices of the two commodities, which in turn has created ripples in India.
What steps have China taken recently?
On August 10, China’s steel hub, the Hebei province, ordered cuts in steel output in the main producing region of Tangshen to control emissions during the Beijing winter Olympics 2022. It has decided to implement ultra-low emissions by reducing crude steel production by 8.8 percent to 21.7 million tonnes this year. To meet the target, steel production has to fall 16 percent in the second half of the year.
What has been the impact of this move?
Iron ore futures in China fell on August 13, posting the second consecutive weekly decline, as government measures to control steel output hit demand for the raw material.
Last week, the China Iron and Steel Association said that the more-polluting mills and the ones that were not energy-efficient, should cut output, and that production in 2021 would be lower than the previous year.
What has been the India-specific impact of the move?
India’s largest iron ore producer, NMDC Ltd, cut the price of the steelmaking ingredient, which is good news for Indian steel producers, according to a The Hindu BusinessLine report. The NMDC had cut prices in July also.
In the second half of July iron ore futures in Singapore fell 18 percent on concerns of falling Chinese demand. The fall was accelerated by the announcement by the Shagang Group, the world’s fourth-largest steel mill, that it was cutting production.
What else has China done in the steel sector?
China announced higher export tariffs for pig iron and ferrochrome, and removal of rebates on export taxes for 23 steel products from August 1. In May, it had removed export tax rebates for 146 steel products, and hiked pig iron and ferroalloys export tariffs.
Impact on India?
China is trying to reduce emissions by controlling steel supply but it does not want a domestic shortage of the metal. Therefore, it is targeting exports. This helps Indian steel companies increase prices, which is a big change from the past when they often complained that China was dumping the metal.
Source: Money Control
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