December 20, 2022

India’s steel output has doubled in the past eight years, and its government would like domestic steelmakers to more than double production by the end of the decade.  Currently, production is 120 million mt/yr, with an annual capacity of 154 million mt. However, the government wants domestic producers to double their production capacity to 300 million mt within the next eight years. According to their Steel Minister, India has a “tremendous” amount of infrastructure projects coming online within the next few years. Thus, steel production needs to grow rapidly. According to USGG data, India is now the world’s second-largest steel producer, bested only by China. (Source: Bloomberg, USGS)

AEGIS notes that India’s appetite for steel is already growing. According to the Economic Times, steel consumption was 75.3 million mt between April and November, up 12% compared to the same period in 2021. Similarly, finished steel imports between April and November were 3.8 million mt, up 22.5% compared to the same period in 2021.

Even though India normally imports little steel from the US, higher Indian demand could be bullish to CME HRC prices, if their demand for US finished-steel products increases over the coming years. Moreover, other major steel importers could be forced to look elsewhere for steel, especially if their cargoes are diverted to India. This could be a good time for steel end-users to hedge future needs into 2023 by buying HRC swaps. Using swaps converts a variable cost into a fixed cost, thereby ‘locking in’ a price for the hedged steel. Since HRC swaps are thinly traded, we suggest using limit orders to establish a specific steel price. Such positions are standard for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (12/20/2022)

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