Steel firms roll over prices in January after steep correction in December

After a steep correction in December, steel companies have rolled over prices in January and believe that the market may have bottomed out. 

According to data from SteelMint, trade prices for hot rolled coil (HRC) – a benchmark for flat steel – stood at Rs 67,500 a tonne at the beginning of December and at Rs 63,100 at the end of the month. In the long products, rebar prices were at Rs 57,500 a tonne at the beginning of December and was at Rs 54,500 towards the end of last month.

A Kotak Institutional Equities report said domestic steel mills lowered HRC prices by Rs 2,500-3,000 a tonne in December 2021, but dealers were given additional discounts.

Companies, however, believe that prices hereon will be range-bound. “We have rolled over prices this month and I believe the market has bottomed out. Whatever correction had to happen has taken place in December,” said Jayant Acharya, director (commercial & marketing), JSW Steel.

Ranjan Dhar, chief marketing officer, ArcelorMittal Nippon Steel India (AM/NS India), too, doesn’t see prices going below December levels.  “In December, prices have already corrected by around 6-8 per cent,” he pointed out. “Traders were waiting for guidance on price which they have now got. So this is the bottom,” he added.

However, according to an S&P Global Platts Analytics report, steel prices in the domestic market are expected to soften by 10-15 per cent in 2022 due to increased production on easing of supply constraints.

Indian domestic HRC prices are expected to average at Rs 53,550-Rs 56,700 per tonne ($705-$745 per tonne) in 2022 calendar year. This compares with average prices of Rs 63,000 per tonne year-to-date in 2021, which is 58 per cent higher than Rs 39,761 per tonne in CY2020, said S&P.

Pricing factors

The rationale for prices to hold rests on a bunch of factors. Indian prices while similar to import price parity were still among the lowest prices globally, companies point out.

“Today, the price is equal to the minimum price which is available at the import parity from lowest price countries and still at approximately $200-$500 discount versus EU and the US,” said Dhar. 

Also, high cost may prevent any major fall in prices. Cost pressures on Indian mills will be felt heavily in the Q4, driven by recent peak coking coal prices, said Dhar.

Coking coal prices had touched levels of $400 a tonne though have moderated to around $340 a tonne.

Acharya said, “Though there may be margin pressure for a couple of months due to coking coal cost. We expect the high coking coal prices to moderate in the coming months, which will help support the margins.”

Domestic demand

But the key factor influencing prices could be domestic demand. “We are going into a good demand season. The pent-up demand in auto is playing out, infrastructure and construction is seeing a lot of activity, while appliances and packaging are seeing highest-ever sales. People are entering the year with a feel good factor, while being cautiously optimistic about the impact of the current Covid surge,” said Acharya. Exports have come off from peak levels. Dhar, however, said the export order book strength is back. “Not to the extent of peak levels, but is picking up,” he said.