Global steel prices continue to fall, India may follow

Experts say prices in India might fall another 3-4% by year-end

Indian steel producers are in for tough times, as prices of the ferrous metal across the world continued to weaken in the fortnight ended November 17. Weak demand, coupled with increased exports from China led to CIS export prices witnessing a bigger fall compared to domestic prices. While CIS prices are down 8.5 per cent, European prices are down five per cent over the past month, and domestic steel prices are down three to four per cent. Across different markets, prices have fallen between four per cent and 12 per cent. The reason behind the weakness in steel prices globally is the sharp increase in Chinese exports. Between January and October, Chinese exports were up 42 per cent year-on-year at 73.9 million tonnes.

India has also seen steel imports surge. In the financial year to date, India's steel imports have risen 35 per cent, while imports from China are up 135 per cent, claim analysts. Analysts believe prices are expected to remain depressed in the near term. Despite a sharper fall in the global markets, domestic prices have declined three to four per cent. Analysts expect a further three to five per cent fall in prices by December-end. Margins and realisations of domestic steel producers are expected to contract in the second half of the financial year. The metals sector has significantly underperformed the Street's expectations on earnings even in the September quarter and the disappointment is expected to continue. Most brokerages are in the process of downgrading the earnings estimate of domestic producers.

Metal stocks have rallied in the past six months, as input prices declined and Indian steel companies imported iron ore, thanks to shortage in India. However, most of the raw material price gains have been priced in and a further decline these prices will push down realisations much faster. Iron ore prices have continued to tumble in the global markets, with the 62 per cent grade ore declining by six per cent in the fortnight ended November 17 and 58 per cent grade ore declining by three per cent. Emkay Global says after maintaining prices for four months despite a decline in global prices, NMDC, too, revised prices for lumps downwards by Rs 200 a tonne, keeping prices for fines unchanged. However, the brokerage does not expect a sharp fall in steel prices, though they might remain weak. While many steel producers have hinted at price hikes in January 2015, analysts believe this may prove to be difficult.