The latest casualty in the falling prices category happens to be scrap. Due to steep decline in demand from Turkey, Korea and China, the Heavy Melting Scrap (HMS) prices of 80/20 category has fallen to $200/t CFR Mundra justifying in a way the drop in prices of billet and other long products. Interestingly, India has imported 7% more of melting scrap in the first 6 months in anticipation of a demand and price rise in the coming months.
In the aftermath of imposition of safeguard duty, the Chinese offer for SS400 grade Hot Rolled Coil (HRC) is down from $300-310/t fob to $265-270/t fob, translating at $290/t CFR Mumbai and $418/t with customs (@12.5%), SD (@20%), VAT and port expenses. The Korean coil correspondingly is offered at around $330 CFR Mumbai and with discounted CD of 1%, applicable SD,VAT and port expenses; it is priced at $436/t at port. Imported coil from Russia is available within this range.The safeguard duty thus shaved off some of the differences of imported landed costs with the domestic prices which are ranging at an average $410/t ex-works and around $430 inclusive of VAT as HRC is mostly modvatable.
Thus if there is a further fall in prices in China, Russia and Korea and there is every indication from the trend that it would be declining at least for the next few months, the threat of imports would stay. In another two months’ time the ports in EU and USA would reduce activities due to winter which would prompt China, Russia and Korea to maximise their exports to India and other South East Asian countries. As the import threat is no longer imaginary, appropriate advance steps by the industry and the government are needed.
As regards excess capacity in China compelling it to emphasise exports against the background of dwindling domestic steel demand, recent analysis by WSD (World Steel Dynamics) shows that gross capacity in China would come down from the current 1065 MT to 850MT in 2018, by 20%. This is indeed significant. What is striking is to know that maximum capacity cut is to come from the small EAF/BF/BOF units who are not members of e China Iron and Steel Association (CISA), while coastal members and EAF members of CISA would in fact be adding capacities by another 35MT in the next 3 years.
Non-CISA members are predominantly those with small capacity in individual plants that are polluting the environment and therefore would not receive any government support that would make it difficult for them to pay back the loans from the banks. The continuous fall in market realization has made matters worse. It also indicates the influence of CISA in shaping the steel policy of the country. Another view that can be taken is that it may be the views of CISA only which may not reflect the government position on capacity regulation in steel.
China has been following environment pollution norms judiciously keeping in view the large-scale discontentment that may erupt due to sudden closure of all the polluting steel plant facilities. The provincial governments are monitoring the progress towards pollution -free environment by the local units in phasing out the plant facilities within a time frame. Interestingly, China is promoting the use of Green Building Materials in terms of energy conversation, emission reduction, safety, convenience and recyclability.
India can take a lesson from China, which has announced policies for full use of steel structures in long-span industrial buildings and wide use of steel in infrastructure sector. All government-funded public buildings have been advised to adopt steel structures.
In addition, all rural houses in the country are to use light-weight steel structures. With so much investment earmarked for building of infrastructure and creating rural infrastructure including houses in India, the demand potential for steel is enormous in the country provided similar policy initiatives for promoting steel use can be undertaken here as in China.
Source: http://www.financialexpress.com/