New Indian capacity will heat up battle for buyers

India’s demand for flat product imports could soon slide, with more than 6 million tpy of new domestic capacity coming on-stream. At least two major mills – Essar Steel and JSW Steel – will start up major new lines during April and May, which are likely to provide some substitution for India’s annual import demand of around 7 million tonnes, market participants said.

India’s demand for flat product imports could soon slide, with more than 6 million tpy of new domestic capacity coming on-stream.

At least two major mills – Essar Steel and JSW Steel – will start up major new lines during April and May, which are likely to provide some substitution for India’s annual import demand of around 7 million tonnes, market participants said.

“Imports will be the first to be affected. We are importing about 7 million tonnes; that number will fall because [of a rise in] the domestic availability of steel,” Essar Steel’s director of marketing, Vikram Amin, told MB.

Amid concern that the sudden increase in domestic production could destabilise the market, Amin said additional production was more likely to soak up some import demand, rather than drive domestic prices downwards.

Essar Steel is expected to commission its 3.5 million tpy compact strip mill in mid-April, while JSW Steel will commission its new 2.8 million tpy blast furnace and ramp up its hot strip mill to 2.5 million tpy by the end of April or early May.

Another Indian mill, JSPL, is also expected to commission a new wide plate mill by June this year, with a meltshop to be added by December 2011.

Steel demand is expected to grow this year at a rate of around 10%, which will easily absorb any extra capacity, Jayan Acharya, JSW Steel’s director of marketing, said. India’s economy is expected to grow by around 9% this year, fuelling demand from an expanding construction and auto manufacturing sector.

“This year about 3 million tonnes of additional steel will come into the market as it will take time to ramp up capacity. The pressure will be felt for the initial couple of months and then ease off,” Acharya said.

More capacity is expected to come on stream this fiscal year starting on April 1, although the timing is less certain. Tata Steel could add 3 million tonnes of annual flat product capacity at its Jamshedpur works.

But most importers are unconcerned about new projects pumping more steel into the market, they said. “The decision to import depends on the prevailing price of the commodity in the domestic market. If the prices are competitive, imports can come under pressure; but there is always a price difference and an arbitrage opportunity to be exploited,” a Mumbai-based importer said.

The rise in output also raises the question of whether India will increase exports if oversupply does develop.

Exports are an option mills can exercise if the domestic market is unable to absorb additional tonnage and if domestic prices fail to keep up with international prices, Essar’s Amin said.

Essar’s strategy on exports is to concentrate on higher grades of steel like quenched and tempered plate for special industrial applications, or API-grade hot rolled coil for the international oil and gas market, Amin said.

But mills will have to increase exports because they are so resistant to cutting prices on the domestic market, a large trader from Mumbai said.

“Logically, imports should fall but that is possible only if domestic mills keep prices low. These people are always resistant to reducing prices, so there is no option left for customers but to import – it’s a cat and mouse game that’s been going on and will continue,” the trader added.

Beyond this year, other Indian mills will add to flat product capacity, including Steel Authority of India, Bhushan Steel & Power, and JSPL.

“Going by the capacity addition figures, we will continue to have an HRC and plate surplus for the next four to five years,” the trader said.

“Production from new brownfield [works] will take four to five years to get absorbed,” the trader said, adding that export opportunities will be on the rise from now on.

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