Ruble Rout Exposes India’s Steelmakers to Russia Threat

By Abhishek Shanker  

Photographer: Andrey Rudakov/Bloomberg

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The rout in Russia’s ruble is making life tougher for Indian steelmakers.
Companies such as Tata Steel Ltd. (TATA), JSW Steel Ltd. (JSTL) and Steel Authority of India Ltd. planned higher output, aided by Prime Minister Narendra Modi’s push for faster Indian economic growth. Some local buyers are turning to Russian alloy instead after the past year’s 49 percent plunge in the ruble against the dollar made the nation’s exports cheaper.
“In the past month or so, deals have been struck for steel imports from Russia,” said JSW Steel’s Mumbai-based Senior Vice President Sharad Mahendra, referring to users and traders of the alloy. Such purchases “will only increase,” he said.
India’s overseas markets such as the Middle East also may turn to more Russian steel, adding to existing competition from Chinese shipments. Russia, the world’s biggest energy exporter, faces recession following a slide in crude oil prices and the imposition of sanctions by the U.S. and its allies for President Vladimir Putin’s annexation of Crimea. That’s put pressure on the ruble.
The darkening economic outlook in the world’s fifth-largest steel producer makes exports all the more attractive for Russia’s mills. The nation produced about 69 million tons
of the alloy in 2013 and shipped 34 percent of that abroad, according to the World Steel Association. India is the fourth-biggest maker of steel, behind global leader China.

Russian Discounts

Russian companies can offer discounts on the Indian hot rolled steel price, which is $550-$600 a ton, said Mumbai-based Niraj Shah, founder of steelanalyst.com, who specializes in Russia and India.
“Apart from shipping steel to India, Russia will also look to sell to markets where India exports,” Shah said, adding sanctions are discouraging demand in parts of Europe. The first Russian steel may arrive in India next month, he said.
Shares of PAO Severstal (CHMF), Russia’s second-largest steelmaker by output, have risen about 13 percent this year, compared with an increase of 9 percent in the benchmark Micex index. OAO Novolipetsk Steel, Russia’s largest domestic steelmaker, is up about 6 percent.
Steel Authority slid about 2 percent and Tata Steel 0.3 percent as of 1:47 p.m. in Mumbai, while JSW Steel rose 0.2 percent. Tata Steel is down 1 percent in 2015, JSW Steel has declined 4.3 percent and Steel Authority has slid 5.2 percent. India’s S&P BSE Sensex index is up 0.3 percent in the period.

‘Lower Prices’

Indian steelmakers raised output targets for the year ending March 31, 2015. Modi made higher investment and better infrastructure key priorities after sweeping to office in May. His government plans to make India a global manufacturing hub.
E-mails to Tata Steel and Steel Authority seeking comment on Russian competition weren’t immediately answered.
Domestic steel producers may have to “lower prices if they want to sell more,” according to New Delhi-based A.S. Firoz, chief economist at the Steel Ministry’s economic research unit.
The ruble will appreciate about 11 percent against the dollar to 56.21 by end the of 2015, potentially reducing some of the price advantage Russian suppliers are enjoying, based on the median estimate from Bloomberg News surveys.
Even so, higher Russian steel exports are probable in the first half of the year, said Goutam Chakraborty, an analyst at Emkay Global Financial Services Ltd. in Mumbai.
“This will be a threat to Indian steel mills,” he said.
India’s total imports of the alloy exceeded 6.5 million metric tons in the nine months through December. That’s 1 million tons more than the year ended March 31, 2014, official data show.
The nation may become a net importer of 3 million tons after being a net exporter last year, according to Firoz from the Steel Ministry. Russian shipments threaten to exacerbate the trend, he said.