While exports to these markets from India will remain high in
the first quarter of this fiscal, retreating prices will narrow the arbitrage
for domestic mills. To sum up, exports out of India will remain range bound at
13-14 million tonne this fiscal on the back of revised quota to Europe and
supply constraints in south-east Asia.
May
09, 2022 11:22 IST | India Infoline News Service
Domestic
steel prices are showing signs of fatigue after a relentless rally over the
past two years following supply disruptions, decarbonization measures globally,
especially in China and geopolitical risks stemming from the Russia- Ukraine
war, which has driven up raw material costs. While prices have defied
correction predictions because of continuing uncertainties, some
moderation is on the cards with the onset of monsoon.
Heightened
geopolitical risks have limited the correction in prices, which had started to
moderate early this year. But the Russia-Ukraine conflict, which began in late
February, cranked it up again on supply-disruption fears. In Europe and the US,
where the impact was greater, prices crossed the $1,600 per tonne mark.
Then rising input costs added to the pain. Prices of international coking coal
(f.o.b. Australia) rose ~47% to $670 per tonne in three weeks from $455 per
tonne in late Feb-22, due to the flooding of mines amid high demand from
countries that traditionally imported from Russia. While coking coal prices
have eased from their peaks, they continue to get support from strong demand at
~$500 per tonne.
All this
has kept domestic steel prices elevated. In April, they hit an all-time high of
over ~Rs 76,000, which is ~95% over March 2020 levels, when Covid-19 was
declared a pandemic.
Says Hetal
Gandhi, Director, CRISIL Research, “Despite a moderation in demand in
January-March, steel prices have inched up owing to higher input costs and
buoyant exports. Also, domestic supply stayed tight, eliminating the
differential between global landed and domestic prices, which was once nearly
Rs 15,000 per tonne. On the other hand, export realization premiums have surged
to ~$75 per tonne in early May.”
While steel mills made the best use of elevated global prices, domestic demand
began to waver. Soaring construction costs, and multiple price hikes by makers
of automobiles, consumer appliances and durables drove down demand in the last
quarter of fiscal 2022. In the first quarter of the current fiscal, domestic
demand could see an optical recovery because of a low-base effect, but consumer
sentiment remains sluggish with higher input costs leading to postponement of
purchases and construction decisions.
Similarly, elevated prices and the resultant inflationary pressure had impacted
sentiment across the globe, eventually leading to a price correction. Since
April, hot-rolled coil prices have declined over 25% in Europe and the US to
$1,150-1,200 per tonne from a peak of ~$1,600 in mid-March.
While exports to these markets from India will remain high in the first quarter
of this fiscal, retreating prices will narrow the arbitrage for domestic mills.
To sum up, exports out of India will remain range bound at 13-14 million tonne
this fiscal on the back of revised quota to Europe and supply constraints in
south-east Asia.
Says Koustav Mazumdar, Associate Director, CRISIL Research, “The onset of the
weak demand season because of monsoon and less-lucrative exports mean domestic steel
prices should begin easing and ultimately move towards Rs 60,000 per tonne by
the end of this fiscal. They will, however, continue to hover well above the
pre-pandemic levels. Flat steel prices could rise 3-5% this fiscal after
surging over 50% last fiscal.”
Further pressure on supply and raw material value chains, and escalation of the
Russia- Ukraine conflict will bear watching