June 4, 2023

NEW DELHI : Since the start of FY24, steel prices have witnessed a continuous downward spiral, primarily driven by the demand weakness in China. As the largest consumer of commodities worldwide, China’s steel prices serve as a bellwether for the global steel industry. With domestic demand falling, China has increased its exports to international markets, including India.

According to ICICI Securities, the price of domestic hot rolled coil (HRC) in the traders’ market fell by 500 per tonne week-on-week, hitting a new low of 58,200 per tonne on 21 May.

Analysts said dealers are apprehensive about the substantial 20% decline ($115 per tonne) in Chinese export prices over the past month, alongside the underlying weaknesses in domestic demand. Mounting import bookings have contributed to the persistent price downturn, the analysts added.

Chinese export prices are at around $550 per tonne, according to Motilal Oswal Securities Ltd data. All major mills in China and Vietnam have also slashed listing prices for May 2023.

An analysis by rating agency ICRA suggested that domestic HRC prices are trading at a premium of $50 a tonne over Chinese imports, and a premium of $25 a tonne over Japanese imports. Notably, Japanese exports have duty-free access to the Indian market. Furthermore, the domestic market premium indicated steel prices will remain under pressure.

Domestic steel prices have been under pressure since March, and pricing pressure has intensified, said analysts at Motilal Oswal Financial Services Ltd (MOFSL). Indian steel manufacturers are facing a double whammy, as demand pickup was slower than anticipated and there is a reduction in realizations.

ICRA has cut its baseline steel price forecasts for FY24 in view of the falling domestic HRC prices, down 3.8% so far in this quarter, and rebar prices seeing a similar trend, correcting by a steeper 4.8%. Any meaningful price recovery looks unlikely in the near term, considering the external headwinds, the rating agency said.

Average domestic HRC prices are now being expected to be lower by 4-5% year-on-year in FY24, against a marginal year-on-year increase of 1-2% expected earlier, it added.

While the lower realizations can put pressure on profitability of steel companies, falling prices of raw material, including coal and iron ore, are likely to provide some cushion, ICRA said.

Iron ore prices, ex-China, that had risen to almost $130 a tonne during the March quarter is now at around $100 a tonne. Since iron ore prices, globally, are witnessing price correction due to subdued steel demand, India’s largest iron ore producer NMDC Ltd too had to cut prices in April by 300 per tonne for lump ores to 4,200 per tonne , and by 100 a tonne for fines to 4,010.

According to analysts, even coal prices have fallen from $400 a tonne levels in the last quarter to under $330 per tonne. Key positives, however, include an improvement in supplies from Australia, a decline in domestic e-auction premiums, and easing coal availability.

According to ICRA, spot price of seaborne prime hard coking coal from Australia is expected to average $255-260 per tonne in FY24, down 20-25% over FY23 levels. Thermal coal prices fell, as domestic e-auction premium from Coal India declining to 137% in April (against an average of 265% in FY2023.

“Moderation in input cost is likely to partly cushion the impact of steel price corrections seen in the current fiscal so far, to help keep the industry’s operating profit margins at 12-13% in FY24, in line with FY23 levels” said ICRA.

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Updated: 27 May 2023, 12:45 AM IST

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