Amid rising metals export profile, could India be the next China?

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India

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No, we don’t mean that much-vaunted but still distant dream of India becoming a second China economically — the disparity expands rather than contracts with time — but rather could India become a pariah state after China in terms of feeling the pain of anti-dumping duties, quotas, and tariffs (particularly with respect to Indian metal exports)?

It has already happened in Europe on stainless steel long product. The E.U. has imposed an annual quota and punitive 25% tariffs for every kilogram over that limit in a bid to protect its domestic producers.

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Last year, India ranked the second-largest steel producer in the world behind China. (However, India’s production totaled not much more than a tenth of China’s output.)

India is becoming a global force in many ferrous and non-ferrous metals.

Originally, the rationale was India’s huge population and low per-capita consumption of metals suggested growth prospects on a Chinese scale.

Such potential has led to considerable investment. A good level of domestic resource — iron ore in particular — has meant economies of scale have favored domestic growth prospects.

But slow GDP growth, a bureaucratic business environment and tortuous legal environment over land ownership have slowed what should otherwise have been a meteoric rise.

India’s rise as a metals exporter

Nevertheless, India has grown as a substantial exporter of steel, aluminum, and other base metals.

As with aluminum, India imports high-end steel products it doesn’t make domestically. However, India exports product at the commercial end of the range.

It also suffers from seasonality in demand and, to a lesser extent, production. One big reason for that? Monsoons, which have hampered efforts for it to be taken seriously as a stable supplier.

When viewed as an opportunistic exporter, it often has to fight it out on the basis of price alone and foregoes the product development cooperation that comes with working as a long-term supplier to consumers with rising quality or technology requirements.

Export inconsistency

The last few years illustrate the inconsistency of India’s role as a regional supplier.

Exports surged in 2016 and 2017 but collapsed again in 2018 before rising again in 2019.

This year, the pandemic and associated lockdowns disrupted trade patterns everywhere. Notably, India’s steel exports to China rose from 0.05% of total steel exports in August 2019 to 38.0% in August 2020.

Indian steel exporters have maintained production during the lockdowns, exporting unwanted output cheaply in the Association of Southeast Asian Nations (ASEAN) market.

The region saw a 219% increase in imports from India in 2019 and a further 59% this year.

But those levels are not likely to continue. With winter approaching, China’s appetite will wane after the October holidays for flat-rolled products. Furthermore, Vietnam is becoming an increasingly attractive supplier with quality that appears readily accepted — not just in China but in the wider ASEAN region.

Indian domestic demand is also recovering. The country is returning to full output despite ongoing high levels of virus infections but is already picking up the slack as exports ease.

Steel production throughout the region has been down this year. China is the lone exception, as its production this summer came in above last year’s level.

But, arguably, aside from China, India has recovered quicker and is well placed to stop discounting surplus production for export markets and start realizing a viable return on its output.

So far, India’s penetration of the European (with the exception of Italy and Belgium) and North American markets is, certain sectors excepted, still modest. Nonetheless, it is rising, and export prices — if not actual production costs — are low. As such, India will likely to incur the wrath of increasingly beleaguered Western manufacturers.

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