As steel demand picks up, companies turn to home market; prices may go up

A pick-up in demand for steel and successive price increases is prompting companies to bring back focus on the domestic market.

Steel companies are mulling an increase in prices up to Rs 2,000 a tonne in February, which would be the fourth increase in a row. The price differential between domestic steel and imports is approximately $30 a tonne currently.  

JSW Steel, director (commercial & marketing), Jayant Acharya said there is a potential for prices to increase to that extent.

Add to it, an increase in international prices by $50-$100 a tonne in the last few months and an upward push in raw material prices, and there is a case for an increase in steel prices.

After a slump in September-October, prices started moving up since November. International prices of hot rolled coil (HRC) in April (last year) were at around $530 a tonne. In September-October, it dropped to $430 a tonne and now it's around $505 a tonne.

"There is an improvement in demand. Prices have bottomed out," Acharya added. 

It holds for domestic prices too that have been moving up since November. In the last three months, the increase passed on to customers is about Rs 3,000 a tonne.

Restocking is one of the major factors fuelling the increase. "Infrastructure and construction sector has seen some of the demand coming back as has auto," said an official of another major steel producer. 

As a result, there has been some correction in inventories across supply chains. JSW's inventory over the last quarter, for instance, has reduced by 245,000 tonne. Over the next few months, Acharya expects demand to pick up further. 

The improvement in demand is prompting steel companies to focus on the domestic market. 

Acharya said, JSW's exports moderated from 31 per cent of total sales in the second quarter to 24 per cent in the third quarter. "Some moderation was expected in the fourth quarter as well," he said, while reminding that the fourth quarter was seasonally a strong quarter.

"The focus is clearly on the domestic market. Whenever there is an increase in prices, the focus is on the domestic market. Even if there is some differential in import and domestic prices, transportation time makes up for it. Exports to Europe take about 2-3 weeks," said another producer.

With the increase in prices, there is clear-cut case for companies to increase focus on the domestic market, said Jayanta Roy, senior vice president, ICRA.

To bring down the inventory levels, steel companies had resorted to increase exports in the second quarter. However, month-on-month, exports have been coming down.

"The key thing to watch out for would be whether the price increase planned in February would be sustainable," Roy added. 

Currently, prices of HRC are at around Rs 36,000 a tonne, that's at the same level as August 2019.

The only difference between now and then, said Roy, is that coking coal prices were at around $200 a tonne last August and it's currently at $150 a tonne. "So there is a coal cost saving of $35-$40 a tonne," he added. 

Coking coal prices had dipped further to $130 a tonne and then  moved to $150-levels.