Bloomberg News

Rupee Plunge to Boost Steel Exports to Record: Corporate India

June 09, 2013

Steelmakers (TATA) in India, Asia’s second-largest user of the alloy, are poised to boost exports to a record as demand slows at home and a plunge in the rupee near an all-time low increases the value of sales overseas.

Exports will climb 30 percent to 6.8 million metric tons in the year ending March 31, according to the average estimate of 10 analysts, government officials and company executives in a Bloomberg survey. The fall of the rupee and demand in Africa is prompting producers to ship more steel after Indian sales in the last fiscal year gained at the slowest pace in four years.

The worst performing Asian currency since April 1 will spur India’s largest producers including JSW Steel Ltd. (JSTL) and Jindal Steel & Power Ltd. (JSP) to boost overseas sales and utilize 24 million tons of new capacity that will added by March. Exports to Africa, where the World Steel Association forecasts demand will rise at a faster pace than in India, will help turn the South Asian nation into a net exporter of the alloy for the first time in seven year, three analysts said.

“Our overseas sales are bound to rise as we are producing more after our expansion and Indian demand is below what we had expected,” JSW Deputy Managing Director Vinod Nowal said in an interview. “We’re targeting all markets and will sell to anyone ready to pay benchmark prices.”

Net Exporter

The rupee has dropped 4.9 percent since April 1 to 57.065 to a dollar making it the worst performing among Asia’s 11 most-traded currencies. It may depreciate further to 60 rupees to a dollar this fiscal year, according to Mumbai-based India Forex Advisors Ltd.

Exports may help JSW, India’s third-largest producer, boost revenue that analysts estimate will grow at the slowest pace since at least 2007. The company, which expanded its main plant in Karnataka to 10 million tons in July 2011, had to operate at lower capacity due to an iron ore mining ban by India’s top court in the southern state. The company expects to raise output by 9 percent this year after mining resumed in the province.

Jindal Steel, India’s second-biggest producer by market value, is raising overseas sales as it more than doubles capacity to 7 million tons this year, Deputy Managing Director Sushil Maroo said in April.

“We are consciously making an effort to develop our export market,” Maroo told analysts in an earnings call on April 26. “Currently the export realization is also better.”

Jindal Steel, which has dropped 37 percent in the past year, fell 2 percent to 279.2 rupees in Mumbai on June 7. JSW Steel declined 2 percent to 721.8 rupees.

Small Difference

Steel shipments from India will rise to 8 million tons this year, according to Rahul Jain, an analyst with CIMB Securities India Pvt. in Mumbai. The 10 percent decline in Indian prices since October has narrowed the difference in earnings per ton between the domestic and the overseas markets, he said.

“India’s demand outlook is grim and producers here will continue to ship more,” Jain said. “With the gain coming from exports, they will be able to keep their factories running at higher capacities.”

Still, Tata Steel Ltd., India’s biggest producer, is looking at local sales this year, after more than tripling exports of flat steel products to 244,000 tons in the year ended March 31.

“Our focus is on the domestic market,” Managing Director Hemant Madhusudan Nerurkar said in an interview in Mumbai. “We haven’t faced much pressure in marketing our products. One has to do well in working with customers and the supply chain to ensure realizations.”

Steel Glut

India, which expanded 5 percent in the year ended March, the slowest pace in a decade, is not alone in facing a glut. European nations and China too are witnessing higher production and lower consumption. The rupee’s decline has allowed Indian steelmakers to price products competitively, without offering many discounts on the benchmark prices, said Giriraj Daga, an analyst at Nirmal Bang Equities Pvt. in Mumbai.

The rupee fell for a fifth straight week on concerns the U.S. Federal Reserve may scale back debt purchases that have fueled fund flows to emerging markets. Prices of benchmark world hot-rolled steel coil, used automobiles and buildings fell to its lowest in six months at $546 a ton on May 27, according to data from Metal Bulletin.

Europe, which has a capacity to churn out about 200 million tons of steel a year, needs to close plants capable of producing about 40 million to 50 million tons, Eurofer President Wolfgang Eder said on June 6. Steel demand in China, the world’s biggest producer, will increase less than 5 percent over the next few years, Xu Lejiang, chairman of China’s biggest publicly traded steelmaker Baoshan Iron & Steel Co., said June 4.

“India will have to export more considering slowing local demand,” JSW’s Nowal said. “Our own shipments will rise to a quarter of the total output this fiscal.”

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net


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