Steel mills plan production cuts as demand falls

Steelmakers are expected to cut production next month by advancing annual maintenance shutdowns to regulate inventory, amid a fall in domestic demand and because of the new export duty that has made international sales unviable, said people in the know.

Finished steel inventory has piled up at steel mills, they said. A more than 22% decline in steel prices since its peak in April this year has made buyers wary of holding inventory in anticipation of further price corrections. Traders and user industries of steel had dipped into their stocks and once those depleted, they are buying only as much as they need immediately.

Consumption of steel has also come down as the seasonally slow period of monsoon arrives.

Meanwhile, steel exports have also taken a backseat since New Delhi levied a 15% export duty on the alloy from May 22 in its efforts to arrest inflation. There was no export duty on steel earlier.

All these factors have resulted in piling of unsold inventory with steel mills, forcing them to advance annual maintenance shutdowns or even pare production by taking multiple smaller production halts of 2-3 days, the people said.

“It’s a lose-lose situation for steelmakers,” said a senior executive at a leading steel company.

JSW Ispat Special Products last week said in an exchange notification that it had advanced its planned shutdown and its blast furnace and other infrastructure would remain shut for 25 days starting June 21.

Usually, steel companies take 15-25 days of maintenance shutdown in September or October, when domestic demand is low. However, ET has learnt that many steelmakers will take these shutdowns in the coming month. Several secondary steelmakers have already taken production cuts.

“It doesn’t make sense in continuing production and accumulating inventory and locking working capital,” said Seshagiri Rao, joint managing director at JSW Steel.

Steelmakers in general are reducing production by 10-15%, the unnamed executive cited earlier said.

The average production of steel in India is about 10 million tonnes a month. Domestic consumption fell to 6 million tonnes last month, this executive said. In the absence of an opportunity to export, the differential was getting accumulated at steel mills.

India exported about 0.75 million tonnes of finished steel in May compared to about 1.24 million tonnes a year earlier. The decline was a direct impact of the export duty as a bulk of overseas sale happens in the last week of a given month, Rao said.

Export of steel is expected to be even lower in June than May, he said. India exported 1.38 million tonnes of finished steel in June 2021.

Flat steel products have particularly been hit by the export duty. Steelmakers in India had installed manufacturing capacities after accounting for significant flat steel exports.