Indian steel, iron ore companies’ fortunes highly dependent on China’s dynamics

It takes just one statement from Chinese authorities or a steel producers’ body in China to change the dynamics and economics of Indian companies in the iron ores sector. Prices of steel and iron ore in India have been volatile in recent weeks because of developments in China, which is trying to regulate the metal’s output.

China accounts for more than half of the global steel-making capacity and absorbs 75 percent of global iron ore imports. Therefore, any signal from China about its likely output of steel, or about the growth of its economy, has a direct bearing on global prices of the two commodities, which in turn has created ripples in India.

On August 10 this year, China’s steel hub, the Hebei province, ordered cuts in steel output in the main producing region of Tangshen to control emissions during the Beijing winter Olympics 2022. It has decided to implement ultra-low emissions by reducing crude steel production by 8.8 percent to 21.7 million tonnes this year. To meet the target, steel production has to fall 16 percent in the second half of the year.

As a result, iron ore futures in China fell on August 13, posting the second consecutive weekly decline, as government measures to control steel output hit demand for the raw material. Last week, the China Iron and Steel Association said that the more-polluting mills and the ones that were not energy-efficient, should cut output, and that production in 2021 would be lower than the previous year.

Promptly in response, India’s largest iron ore producer, NMDC Ltd, cut the price of the steelmaking ingredient. The NMDC had cut prices in July also.

China announced higher export tariffs for pig iron and ferrochrome, and removal of rebates on export taxes for 23 steel products from August 1. In May, it had removed export tax rebates for 146 steel products, and hiked pig iron and ferroalloys export tariffs. China is trying to reduce emissions by controlling steel supply but it does not want a domestic shortage of the metal. Therefore, it is targeting exports. This helps Indian steel companies increase prices, which is a big change from the past when they often complained that China was dumping the metal.

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