At the very outset, allow me to dispel any lingering notion that India will replace China. That much-vaunted, zealous sabre rattling is just that – sabre rattling at worst and a distant dream at best.
If at all, by all indications the economic disparity between India and China might expand, rather than contract, with time.
And yet, India is slowly but surely expanding its footprint and profile of its metals exports in not so subtle a fashion. The first sign of the country trying to push its exports profile, particularly in the metals segment came from the European Union (EU).
As Minister of Commerce and Industry Piyush Goyal is trying to ink a preferential treaty deal with the EU, the irony can’t be missed. The EU has imposed an annual quota and punitive 25% tariffs for every kilogram on stainless steel long product over the limit it has set for India in a bid to protect its own domestic producers.
Last year, India ranked the second-largest steel producer in the world behind China. That India’s production totalled not much more than a tenth of China’s output is a different matter altogether.
With a global anti-China sentiment gaining roots along with increasing trade disputes between India, China and few other countries, India is becoming a global force in many ferrous and non-ferrous metals. To be sure, India is also the second-largest producer of aluminium in the world.
Originally, the rationale was India’s huge population and low per-capita consumption of metals suggested growth prospects on a Chinese scale. Such potential led to considerable investment in the metals – both ferrous and non-ferrous – industry.
Economies of scale
A good reserve of domestic resource, iron ore in particular, has meant economies of scale have favoured 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. Nevertheless, India has grown as a substantial exporter of steel, aluminium, and other base metals.
What is also not well realized that many Indian companies are producing high-end steel and aluminium products that are not meant for domestic markets. They are only targeting exports.
With low cost of labour and an even lower production cost, such high-end metal products of commercial end of the range for international markets are becoming increasingly lucrative.
However, it is still early days and the industry suffers from seasonality in demand and, to a lesser extent, production. The inconsistency in India’s production – and exports – also makes the country to be viewed as an opportunistic exporter.
It often has to fight out with the competition on the basis of price alone. This handicaps the industry further by foregoing product development cooperation that comes with working as a long-term supplier to consumers with rising quality or technology requirements.
The last few years also 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.
Steel exports to China rise
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 such high levels are unlikely 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. 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 still modest, except for certain high-value items.
Nonetheless, it is rising, and export prices are low. The pertinent question today is whether India too is being considered a pariah state after China in terms of feeling the pain of anti-dumping duties, quotas, and tariffs, with respect to Indian metal exports.
India is likely to incur the wrath of an increasingly beleaguered Western manufacturers of steel and other metal products. Now if It should be considered as a back-handed tribute to our exports calibre is literally a billion dollar question.