Removal of export rebates in China positive for steel prices: JPMorgan India

Pinakin Parekh, CFA, ED-metals and mining at JPMorgan India, on Friday, said that removal of export rebates in China is a positive for steel prices.

The metals space is the sector to watch out for with so many things happening simultaneously. China is planning to raise export tariffs on pig iron and ferrochrome from August 1. At the same time, it is also removing export rebates for 23 steel products. On the other hand, steel giant ArcelorMittal has forecast higher consumption and the Madras High Court has put a cog in the wheel by saying that they are asking for cartelisation examination by the Competition Commission of India.

Speaking in an interview with CNBC-TV18, Parekh said, “We need to look at the Chinese developments in a sequence of the last 12 months. First, production cuts and then on May 1st they removed the export rebates on 146 products and on Thursday, they announced the removal of export rebates on the other products. They have also increased the export tax on two things, which is ferrochrome and high purity pig iron.”

“Therefore, China is telegraphing to the industry that we want to export less steel, so export rebate removal was positive. And over the next three to four months, as Chinese demand recovers and steel production falls lower, there is an expectation of some kind of formal export tax coming in on the main steel products that China exports,” he said.

On cartelisation by steel producers, Parekh said, “We will not comment on what the judicial (The Madras High Court) process is or what the regulatory agencies do. What we would highlight is that steel in India is priced on an import parity basis, you are free to import steel, and you can work on a landed basis and the domestic steel companies generally price steel at a slight discount to import parity prices; the government adjusts the import duty and to that extent, the domestic steel prices take place. So I don't think that there is any collusion.”

“This is a free market; a consumer can import steel if the domestic prices are high. The problem is that the world has worked on China exporting a large amount of steel over the last 10 years and that clearly is not the situation, going forward. So, it is just that higher prices could possibly be here to stay,” said Parekh.

For the entire interview, watch the video