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Red Sea Crisis Raises Concerns For Indian Steel Exporters

Updated: Feb 05, 2024 02:06:24pm

Red Sea Crisis Raises Concerns For Indian Steel Exporters

New Delhi, Feb 5 (KNN) In a new challenge for Indian steel manufacturers, the ongoing Red Sea crisis is casting a shadow over exports, potentially impacting the already strained industry.

The timing couldn't be worse as steel companies grapple with lower demand and stiff competition from global counterparts.

Data from Crisil Ratings reveals that between fiscal years 2020 and 2022, Indian steel exporters dispatched approximately 10-15 per cent of their annual output, with flat steel constituting about 70 per cent.

However, this figure plummeted to 6.5 per cent in fiscal 2023 after the government imposed export duties, resulting in a total of 8.3 million tonnes exported.

The current fiscal year is predicted to witness a further decline in India's steel exports, ranging between 5-7 million tonnes, influenced by subdued global demand and prices.

The Red Sea crisis, initiated by Iran-backed Houthis in Yemen attacking vessels since November, has caused a nearly 60 per cent reduction in daily container vessel traffic within the Red Sea since mid-December.

Shipping costs have surged, with the diversion of tankers from Asia to Northern and Western Europe via the Cape of Good Hope incurring an additional USD 932,905 per voyage and doubling transit time to 32 days.

Freight operators are reluctant to navigate through the crisis-ridden Red Sea, leading to potential delays in executing orders.

If the crisis persists, companies like L&T are considering alternative routes, even if they involve longer journeys.

While concerns over increased freight costs and container availability persist, the impact on the earnings and credit profiles of steel manufacturers is anticipated to be limited.

Factors such as robust domestic demand, healthy steel prices, and the ability of manufacturers to pass on a significant part of the increased freight costs contribute to a relatively optimistic outlook for the industry.

Despite the challenges, steel makers are exploring strategic adjustments, with JSW Steel Joint MD & CEO Jayant Acharya indicating a shift towards break bulk shipments to mitigate the impact on container vessel disruptions.

In response to the crisis, Jindal Stainless has revised down its export forecast for the fiscal year, citing disruptions in the Red Sea and weakening demand in Europe and the US.

(KNN Bureau)


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