China’s trade data for November was below market expectations, confirming that its economy continues to face difficult times. The country’s imports fell by 6.7% from a year ago, while exports rose by 4.7%. This doesn’t bode well for commodities, especially iron ore. In fact, iron ore imports into China fell by 13.4% from a year ago and by 15.1% sequentially, according to a Reuters report. Lower demand for iron ore has sent prices crashing; they are already down by 47.3% in 2014 so far. This may seem like good news for steel companies—but while they do lower costs, they also set in motion a decline in steel prices. And China is also adding to the steel industry’s problems by exporting more steel, since slowing domestic demand is causing a surplus. Steel exports in November rose by 13.7% over the previous month.The tremors from these movements are visible in India as well. Some of it is good. Indian companies have been tackling the issue of poor iron ore availability—due to cessation of mining activities in certain states—by importing ore. This has caused a surge in iron ore imports to levels not seen earlier. Though imports are out of necessity, falling prices do dull the blow on steel producers’ profits to some extent. But then, steel imports too have been racing ahead, rising by 20.8% in value terms in the April-October period, shows government trade data. October alone saw imports rise by 33.3%. So long as producing steel for exports is viable, Chinese steel will continue to find its way into Indian markets. Steel realizations are likely to remain weak in India in the face of weak trends in prices in Asia, particularly China. But lower raw material prices do offer some comfort. The one big hope for domestic steel companies is a recovery in domestic demand, which can translate to higher sales growth and help them operate at better utilization rates. Not surprisingly, shares of leading steel companies have been under pressure since November.
Source: http://www.livemint.com/