After rally, steel and iron ore on course correction led by higher supplies

Price correction started mid Jan, with secondary producers dropping drop long product prices by Rs 7,000-8,000 a tonne; primary producers followed in Feb, pruning by Rs 2,000-3,500

After a continuous rally since the unlocking in July, prices of steel and iron ore have started easing on higher supplies.

The correction in prices started in the middle of January, with secondary steel producers dropping drop long product prices by Rs 7,000-8,000 a tonne; primary producers followed in February with a reduction of Rs 2,000-3,500 a tonne. 

Jayant Acharya, director (commercial & marketing), JSW Steel, explained that the main reason behind the softening was that supplies of long products had increased in the domestic market. 

“Long product supply in Q1 was a little less than 7 million tonne. The supply increased to 14 million tonne in Q3. Long product exports have also come down; exports moderated from 3,00,000 tonnes to 240,000 tonne in Q3, so overall availability has increased in the domestic market,” he said.

Moreover, Acharya pointed out that the secondary sector had also picked up. “Iron ore supplies, which were not adequate, especially to the secondary sector has now picked up and that has improved their output. Billet export in India was 2.3 million tonne in Q1 and came down to 1.1 million tonne in Q3. All these have increased the supplies of long products in the market,” he added.

Steel prices have been in focus over the past many months with prices touching an all-time high in January to Rs 58,000 a tonne for domestic hot rolled coil (HRC); it was at Rs 36,250 a tonne end-June. The Competition Commission of India (CCI) is understood to be probing alleged cartelisation.

Steel producers point out that the increase in global steel prices were much higher. However, with global prices easing, domestic prices have also started coming off their highs. It’s not just steel, the entire chain is seeing a correction in varying degrees. 

Effective February 7, state-owned NMDC, the largest iron ore producer in the country, revised its prices downwards. 

NMDC’s revised prices stand at Rs 5,100 a tonne for lump ore (65.5 per cent) and Rs 4,210 a tonne for iron ore fines (64 per cent) as against Rs 5,700 a tonne for lump ore and Rs 4,810 a tonne for fines in January.

Iron ore from Odisha – which has been at the centre of attention for inadequate supply that sent prices soaring – has also seen a downward revision, on an improvement in supply. 

According to data from SteelMint, lump ore prices were at Rs 8,600-8,900 a tonne on January 18 and stood at Rs 7,500-7,700 a tonne for week ending February 14; fines (Fe 63) dropped from Rs 6,200 a tonne to Rs 5,450 a tonne. 

However, a secondary steel producer pointed out that even though iron ore prices had corrected, it had not dropped to the extent of long steel. “At current level, margins are now negative,” a secondary producer said.

But an overall rebalancing is underway and it’s linked to global prices. Domestic scrap prices were at Rs 30,200 a tonne at the beginning of January, according to SteelMint data, and dropped to Rs 26,600 a tonne. It’s in line with global prices. 

Acharya said, international scrap touched a peak of about $480 and now has corrected to about $400 levels. Steel prices in India, too, are linked to movement in global prices he added. “International long steel prices have corrected on correction in scrap and billet prices. What we see in India is a reflection of global prices,” he said.

Internationally, in fact, flat products have also moderated to some extent in China and Europe. “That is again because supplies are stabilising in the flat products space. However, India still is at a discount to the global prices of flat steel. And also, the elevated iron ore and coal prices are increasing the cost of steel production,” Acharya said.

But a correction in flat products in the domestic market is likely, especially in the wake of the customs duty cut. 

An Icra report earlier this month suggested that hot rolled coil (HRC) prices could correct by up to 10 per cent by end-March 2021 to align with the international prices and remain competitive in the domestic market. 

It was based on Chinese export HRC prices that witnessed a 10 per cent drop in January 2021 due to lower domestic demand during winter months of November-March. At current prices, the landed HRC prices from China at new duty rates are trading at a 10 per cent discount to domestic HRC prices, it had said.

The Icra report also said that after touching a record of Rs 58,000 a tonne in January, resistance from end-users led to a roll-back in prices to Rs 56,000 a tonne.

However, even if steel prices settle down, demand is expected to be good. “Demand this year, internationally and domestically, will be good, driven by infrastructure projects and automotive recovery in most parts of the world,” Acharya said.

He pointed to the budget and said, the focus and spend on infrastructure, industry, and inclusive development  has been laid out, which augurs well for steel demand.

The steel industry, however, has some concerns on the customs duty cut and how that would impact imports from China. 

“We have to keep an eye on the imports from China. Anti -dumping and safeguard duty are long term measures because of certain dumping actions that have occurred in the past.  We need to be careful because if unfair trade starts, imports will increase which can dent India’s efforts towards Make in India and self-reliance,” Achaya said.