Engineering exports recorded around 3.3% cumulative growth year-on-year during the first five months of fiscal 2024-25

Observation: Excluding the export of iron and steel, engineering exports recorded a much higher growth both on a monthly as well as cumulative basis as shown in the table above.  

Exports of Iron and Steel conceded nearly 19 percent year-on-year decline in August 2024 and 29.4 percent year-on-year decline during April-August 2024-25.

Source : DGCI&S, Govt. of India

The following table depicts region wise India’s engineering exports for April-August 2024 as opposed to April-August 2023.

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Reasons for Decline (As per April-August 2024-25):

• Iron and Steel and Products of Iron and Steel: - Insights: 

a) During April-August 2024-25, India’s exports of Iron and Steel deteriorated by 29% vis-à-vis same period last fiscal, while Products of Iron and Steel deteriorated by 1% during the same period. 

b) The ferrous sector continued to record decline in exports mainly due to slackened domestic and global demand pressuring down prices. Plus, China's aggressive export policy is also likely to sustain its negative impact on steel mills across the globe, including India. 

c) Chinese steel prices have continued to down-trend in September. Even, Indian steel prices are grovelling at near-four-year lows. Flat steel prices, especially of hot rolled coils (HRCs) remained in a bear grip amid lacklustre demand despite the fact that the festive season is round the corner. 

d) Several factors are weighing on flats. One, with the fiscal half year closure approaching buyers reined in procurements amid a liquidity strain and resorted to need-based procurement. Retailers, in turn, nursing inventories, also stocked up less, leading to a pile-up across the value chain. Two, the import pressure continues to exist. Cumulative imports touched 0.51 million tonnes till mid-September 2024 against full August's 0.63 mnt and 0.64 mnt in July. However, an additional 0.29 mnt are expected by end- September. India will remain a net steel importer in the July-September quarter as well as in the first half of the current fiscal. Lastly, exports remain a no-show, exerting downward pressure on domestic prices. 

Export offers to Southeast Asia and the Middle East continued to be on hold while those to Europe remained stable w-o-w. However, global sentiments are dull and ongoing anti-dumping investigations from the European Commission have made buyers from here wary of Indian imports. Indian steel prices may remain range-bound or see marginal dips in the short term as demand is likely to stay lacklustre for some more time yet. Moreover, global prices are subdued too. The auto sector usually revs up  ahead of the festive season and spurs up the flats segment. However, this year, auto makers are sitting on inventories. An extended monsoon is keeping construction dampened.

Top Markets affected: India’s exports to USA and EU markets are getting affected due to several factors. List of various NTMs, including the Carbon Border Adjustment Mechanism (CBAM) and Deforestation-free Regulation (EUDR), impact Indian exports. The economic slowdown in key markets like the USA and EU has reduced demand for imported goods, including those from India.

• Non- Ferrous Sector (Copper, Aluminium, Zinc and Nickel)

• Copper: (decline of around 12%)

a) The global copper market has seen significant volatility in recent months, with prices experiencing a sharp decline due to various factors.

b) Falling international prices: As of July 2024, international copper prices have fallen to a two-week low amidst uncertainty over supply and demand in China, as well as broader weakness in the equity markets. Since hitting a record high in May 2024, copper prices have dropped by 14%, according to the London Metal Exchange (LME). Experts predict that prices may continue to decline in the near term, reflecting a softer demand outlook in China, the world's largest consumer of copper.

c) Increased Chinese exports: Compounding the challenges for India, China's refined copper exports surged to an all-time high in June 2024, driven by weak domestic demand. This influx of Chinese copper into the global market has intensified competition, leading to a reduction in India's copper exports. The increased availability of cheaper Chinese copper has made it more difficult for Indian exporters to maintain their market share.

d) Red Sea crisis: The ongoing geopolitical crisis in the Red Sea region has disrupted trade routes, adversely affecting India’s copper exports. The instability in this critical maritime corridor has slowed down the movement of goods, creating bottlenecks that have hit the export of various products, including copper. This disruption has contributed to the overall decline in export volumes and delayed shipments.

e) Rising domestic demand: On the domestic front, there has been a significant surge in demand for copper, driven by the rapid expansion of the electric vehicle (EV) industry and other emerging sectors. The Ministry of Mines projects that the demand for copper in India, particularly from the EV sector, will increase by 1.7 million tonnes by 2027. The per capita copper consumption in India is also expected to rise from the current level of 0.6 kg to 1 kg in the coming years. This growing domestic demand is diverting supply away from export markets, further contributing to the decline in exports.

Closure of Vedanta's Sterlite copper plant: India's copper production capabilities have been significantly impacted by the closure of Vedanta's Sterlite Copper plant in 2018. According to the International Copper Association, the closure has led to an estimated annual loss of $1 billion in net foreign exchange inflows due to reduced copper exports. Additionally, India has been forced to spend approximately $1.2 billion annually on copper imports to fill the supply gap, further straining the country's trade balance. The loss of this key production facility has reduced India’s ability to compete in the global copper market.

• Aluminium (decline of around 11%)

India's aluminium exports have faced significant challenges in recent times due to a combination of global market dynamics, restrictive trade policies, and domestic factors. Below are the key reasons contributing to the decline in aluminium exports:

a) Restrictive trade policies and geopolitical tensions

Section 232 and U.S. Tariffs: The U.S. Section 232 tariffs have adversely affected aluminium exports to the U.S., one of India's key markets. Between April and July 2024, India’s aluminium exports to the U.S. declined by 5%. These tariffs are part of broader protectionist measures that have hampered the competitiveness of Indian aluminium products in the U.S. market.

ASEAN Trade Barriers: In the ASEAN region, countries like Malaysia have imposed high Most Favoured Nation (MFN) duties ranging from 25% to 30% on tariff lines between 7604 to 7608, severely limiting exports from India’s downstream aluminium industry, which predominantly comprises MSMEs. Similarly, Indonesia has placed downstream aluminium products under the Sensitive Track, further restricting market access.

Discrimination in Neighbouring Markets: India’s aluminium exports also face discriminatory practices in neighbouring countries such as Bangladesh. In April 2023, Bangladesh reclassified aluminium billets under HS code 76012090 to 76012000, removing them from the South Asian Free Trade Area (SAFTA) agreement and imposing a 5% Basic Customs Duty (BCD) on imports from India. This change has increased the cost of exporting aluminium billets to Bangladesh, affecting trade volumes.

b) Increased exports from China

Competitive Pressure from China: China's exports of aluminium products have surged, with a 14.1% increase in quantity and an 8.9% increase in value between January and July 2024, according to Chinese Customs data. This surge has intensified competition in the global aluminium market, making it challenging for Indian exporters to maintain their market share.

c) Decline in Global aluminium prices

Price Trends: Global aluminium prices have been on a downward trend, driven by higher production levels and weaker demand, particularly in China. The decline in prices has further eroded the profitability of Indian aluminium exports, making them less competitive on the international stage.

d)  Rising domestic demand Infrastructure Development: The Indian government's focus on infrastructure development has led to a significant increase in domestic demand for aluminium. According to ICRA, domestic aluminium demand is expected to grow by around 9% annually over the next two fiscal years. This rising demand has diverted more aluminium towards domestic consumption, reducing the availability of aluminium for export.

a) Impact of the Red Sea Crisis

Supply Chain Disruptions: The Red Sea crisis has caused delays in the shipment of aluminium scrap to India, as many of these grades originate from the Middle East and the UK. This region accounts for approximately 40-45% of India's total scrap volumes. The reduction in scrap imports has disrupted the supply chain, affecting production and trade dynamics.

b) U.S. Anti-Dumping Duties on Aluminium Extrusion Products

Anti-Dumping Duties: On May 1, 2024, the U.S. Department of Commerce announced preliminary antidumping duties on aluminium extrusion products from 14 countries, including India. Indian exporters now face a prohibitive dumping duty rate of 39.05% on products classified under HSN 7604 and HSN 7608. This steep duty rate significantly undermines the competitiveness of Indian aluminium exports in the U.S. market. In response, Indian exporters have submitted detailed representations to the U.S. Department of Commerce, highlighting the potential adverse effects on their businesses.

• Zinc (decline of around 17%)

The global Zinc demand has been affected by rising Zinc prices. Global Zinc prices rose over 14% since the beginning of 2024.

• Reasons for decline in Exports of Internal Combustion (IC Engines) (decline of around 1%)

The global economic environment plays a significant role in influencing trade volumes impacting the demand for internal combustion engines.

Slowdown in key markets such EU and USA further impacted demand. Moreover rising raw material costs, currency fluctuations and disruptions in the supply chain (such as raw material shortages, transportation delays, or production bottlenecks) can affect export volumes.

• Reasons for decline in Exports of Office Equipment (decline of around 19%)

Changes in remote work practices, hybrid work models, and office space utilization might have affected the demand for office equipment.

The increasing adoption of digital tools and virtual collaboration platforms may have reduced the demand for traditional office equipment.

Source : DGCI&S

State wise engineering export performance

The table below indicates the exports from top Indian states. It is evident from the table that almost 93 % of India’s exports is contributed by the listed 12 states. Within this almost 54.7 percent of exports is done by Maharashtra, Tamil Nadu and Gujarat together.

• Top 12 states constitute over 92.7 % of India’s engineering Exports. Karnataka performing extremely well and moving up to 4^th position, Odisha moving further up to 5^th position while Telangana dropping down to 6^th position and Haryana down to 10^th position during the fiscal April-June 2024-25 compared to the same period last fiscal.
• Major negative growth witnessed in states like Maharashtra, Karnataka, Odisha, Andhra Pradesh, West Bengal, Haryana, Delhi and Rajasthan etc during April-June 2024-25 compared to the same period last fiscal.
• Telangana had the most positive in the current fiscal.
• Maharashtra being the highest state in terms of Engineering Goods exports is leading by US$ 1535.8 million from Tamil Nadu (Second Highest State) during April-June 2024-225.

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Engineering forms a considerable part of the broader manufacturing sector and the share of engineering production in overall manufacturing output is quite significant. As exports generally come from what is produced within a country, some correlation between manufacturing production growth and engineering export growth should exist. We briefly look at the trend in manufacturing growth as also engineering export growth to see if they move in tandem. It may be mentioned that manufacturing has 77.63% weightage in India’s industrial production.

Engineering export growth and manufacturing output growth moved in the same direction in as many as nine out of twelve months in each of the fiscal years 2019-20 and 2020-21. During fiscal 2021-22, engineering export growth and manufacturing growth moved in the same direction in seven out of twelve months while in each of fiscal 2022-23 and 2023-24, as many as 10 out of 12 months saw engineering exports and manufacturing output moved in the same direction.

The first two month of fiscal 2024-25 also saw manufacturing output growth and engineering exports growth moving in the same direction. April 2024 saw engineering exports declined from a growth in Mar 2024 and manufacturing output growth decelerated. The month of May 2024 witnessed just the opposite. Engineering exports bounced back to growth path and manufacturing output growth accelerated. June and July 2024 however saw both moved in the opposite direction. June 2024 saw higher engineering export growth but lower manufacturing growth while July 2024 just witnessed the reverse.

The link between these two may not be established on a monthly basis, but a positive correlation may be seen if medium to long term trend is considered.