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Steel prices may face pressure from falling international prices: Ind Ra.

Date: 01-12-2021
Subject: Steel prices may face pressure from falling international prices: Ind Ra
Indian steel prices which touched an all-time high level of around Rs 69,000 - Rs 70,000 a tonne at the end of October is likely to face pressure and fall in the near term due to falling international prices.

“While prices are at a high point, they are likely to face pressure from a continual decline in global HRC prices due to a sluggish Chinese demand and declining raw material prices,” rating agency, India Rating and Research said in a report on Tuesday.

Both HRC and rebar prices increased in mid-November 2021 on a month-on-month basis. Domestic HRC prices were at Rs 71,000 a million tonne in mid-November 2021, up 1% mom and 47% yoy. Domestic rebar prices were at INR61,000/MT in mid-November 2021, INR1,000/MT mom higher and at a 10-year high.

“The increased price levels are due to the coal crisis with 60%-65% of domestic rebar production being through the induction furnace route (predominantly sponge iron-based),” the report said.

Ind-Ra expects the Chinese crude steel output to be weaker in the second half of 2021 than in the first half on account of the strict government measures to curb production. And, India’s crude steel production improved 2.4% yoy and 2.5% m-o-m to 9.8 million tonnes in October 2021.

India’s finished steel consumption was 1.1% yoy lower but 8.2% mom higher at 8.19 MT in October 2021. India’s steel consumption rose significantly from 7M FY22 to 53.53 MT from 42.14 MT in 7MFY21.

Ind-Ra expects Domestic finished steel consumption in the third quarter to be sequentially higher with the monsoon season being over and improving vaccination rates.

India’s flat steel exports were reduced over September-October 2021. In October 2021, flat steel exports were 26% mom lower but 53% yoy higher at 0.81MnT. Ind-Ra said that the export market is likely to be subdued over the near term.

“The lower export levels can be attributed to Vietnamese buyers sourcing hot-rolled coil (HRC) domestically, inactivity in the UAE market, limited inquiries from Nepal and a decline in global HRC prices,” the report said.

Due to the high cost of production, with high coking coal prices in October Ind-Ra said that the spreads of top steelmakers got corrected in October and November.

“Both flat and long product domestic spreads (realisation/MT minus cost/MT) corrected in mid-November 2021 as anticipated with the steel mills consuming the high-cost coking coal inventory. The spreads could face further pressure in case of any correction in the steel prices,” the report said.

During October 2021, India's coking coal imports were at 4.34 MT, up 2% mom but 16% lower yoy.

“However, lower inventories will force steel players to import higher volumes. China’s imports remained on par at 4.38MnT in October 2021, up 1% mom but 26% lower yoy,” the report said.


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