Domestic steel prices have risen in the last 2-3 months, providing some relief to steel companies pummelled by large imports and low prices. Analysts, however, say a meaningful turnaround for the sector is still some time away.
Steel-makers have been able to raise prices by 18-20% since February this year, according to analysts. A rise in global steel prices, along with imposition of the MIP in India, have supported prices, say analysts, adding that the price difference between domestic prices and imports has also narrowed.
With the 18-20% rise in prices, domestic hot rolled coiled (HRC) steel is now trading at a narrow discount of 5.5% to the landed cost of imports, noted an analyst.
Chinese hot rolled steel prices have risen by nearly 40% since January and were trading at around $438 per ton as on Friday. This is close to the MIP set for hot rolled steel in India which is roughly $450 per ton.
The increase in prices may help Indian firms post better earnings.
“MIP and China-led steel price increase led to a sharp jump in restocking-led domestic steel demand. For the four steel stocks under our coverage, we expect sales volume in the fourth quarter to increase 13% year-on-year (y-o-y) to 10.7 million tons (mt). Domestic steel prices have increased by Rs 4,000-5,000 per ton since the MIP was announced in early February. This should drive further price realisation of around 8% in the June 2016 quarter if current spot domestic HRC steel prices were to sustain,” a Motilal Oswal April report said.
In the October-December, 2015 quarter, the country’s all top three steel producers – JSW Steel Ltd, Tata Steel Ltd and Steel Authority of India Ltd – reported a consolidated loss as commodity prices remained weak.
However, it may be early to call it a turnaround.
The global economy is fundamentally sluggish; the capacity overhang in the world continues to be there. A weak economy is leading to weaker investments in various parts of the world that is resulting in surplus steel finding its way into India.
According to World Steel Association, global steel demand will decrease by 0.8% in 2016 and Chinese demand is likely to decline 4% in the same year.
However, analysts are of the view that even if international steel prices do not hold high for long, MIP will help the domestic steel companies.
However, if the MIP is removed in August and no other scheme is introduced by the government, meanwhile, to protect Indian players while international steel prices correct, there would be an impact.