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Steel prices have hit the bottom, says industry

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Major steel firms feel prices of the alloy have hit the bottom and can only move upwards from here. Benchmark hot-rolled coil (HRC) price has fallen by around 24% from its peak of Rs 78,000 a tonne on April 6 to Rs 59,800 as on July 6, SteelMint data showed.

Tata Steel CEO and managing director TV Narendran said “it looks like prices have bottomed out”. ArcelorMittal-Nippon Steel India’s chief marketing officer Ranjan Dhar said the prices have hit the cost level of the mills and there is no headroom for it to go further down.

Hovering around Rs 36,500-Rs 39,800 per tonne between January and July 2020, prices of HRC started picking up from Rs 38,750 a tonne in the first week of August 2020 to reach its peak at Rs 78,800 a tonne in the first week of April this year. Though the rise was not always steady, average monthly price never fell below Rs 55,300 per tonne in the entire 2021.

The downward trend got aggravated with the imposition of 15% tax on exports of various steel grade by the government from May 22 to ensure more availability in the domestic market and check the northward journey of the price.

Since then, prices have fallen by around 10% in the Mumbai wholesale market. Exports have also dried up. In June, exports of finished steel were down by a little over half of 1.09 MT recorded in May.

Apart from putting pressure on the domestic industry to sell their produce in the domestic market, the duty robbed of the competitiveness of the industry in the international market. A couple of rating agencies have already predicted 25-40% reduction in exports of steel from the country in the current fiscal. India had exported around 13.5 million tonne of finished steel last fiscal.

The domestic steel industry has, however, some solace in imports. While it has never gone up to 0.5 MT in the last six months, it was just 0.29 MT in June. Industry sources said buyers are not keen on imported material since the same is available at 2-5% cheaper domestically.

However, the double whammy of stagnant domestic demand as buyers were on the wait and watch mode expecting prices to come down for the last two months or so and dry up of the export market, led to a pile up of inventories for the domestic steelmakers — from the usual of 2-3 days’ stock to an average of 20 days’ stock. These factors forced almost all steel firms to prepone maintenance shutdown, and as a result, inventory level of the steel firms have got reduced.

The preponement of the shutdown has led to a flat or slightly lower production for almost all major steel firms in the first quarter of the current fiscal over the immediate past quarter. Sequentially, JSW Steel’s domestic crude steel production including from entities in which it has joint control fell by 3% to 5.72 million tonne (MT) in Q1FY23. Tata Steel India’s production was flat at 4.92 MT in Q1FY23 sequentially.

Others who depend on sourcing iron ore from the open market were also impacted. State-run iron ore miner NMDC, which commands around 20% of the domestic iron ore market, reported a 40% decline in year-on-year sales in June at 1.9 MT. In Q1FY23, its sales were down by 20% y-o-y, despite reducing prices by up to 36% between April 1 and June 5, the effective date of the last price revision.

Iron ore is an important raw material for steelmaking, requiring about 1.5-1.6 tonne of the raw material to produce every tonne of the metal.

However, as Dhar said, “domestic demand is improving a little bit since the last one week. Lot of activities which have not happened for the last two months are recovering now. Demand is improving overall.” The demand will further improve after the Monsson is over, but he refused to hazard any guess on the price movement.

Icra’s Jayanta Roy, however, said demand for steel is strongly correlated with the performance of underlying economies. With rising inflation, central banks around the world are increasing interest rates with an objective of slowing down their economic growth rates, which in turn is likely to adversely impact metal demand going forward.

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