Steel prices see correction in May due to weak demand

According to a recent Icra report, prices of hot rolled coil corrected by around Rs 2,750 a tonne

Steel prices have been rolled over for the month on the back of a muted demand and correction in international prices, coupled with a reduction in raw material prices.

Steel producers said the market was not conducive to increasing prices.

According to a recent ICRA report, prices of hot rolled coil (HRC), the benchmark for flat steel, corrected by around Rs 2,750 a tonne in May. HRC prices after the correction is around Rs Rs 36,000 a tonne.

However, the price correction was not a cause for worry yet, because raw material prices had also been revised downwards. Iron ore prices in the global market had come down from a high of $90 a tonne to $60 a tonne while private miners in Odisha were understood to have reduced prices by Rs 150-200 a tonne.

Coking coal prices have also seen a sharp decline from $314 a tonne in mid-April to $170 a tonne in mid-May. Iron ore and coking coal together account for 75-80 per cent of the input cost of steel.

Despite the weakness in prices, the margins of steel companies would improve from the second quarter, ICRA Senior Vice-President Jayanta Roy said.

“The benefit of the decline in coking coal and iron ore costs would start flowing in from the second quarter and push gross contribution levels of blast furnace players higher by around Rs 2,000 a tonne over Q4 FY2017, assuming domestic steel prices remain at the prevailing level.”

However, Roy cautioned that unless domestic demand picked up, the industry prospects would remain challenging.  “Chinese HRC prices have corrected 17 per cent since March, if the trend persists, then exports would not be that remunerative,” he pointed out.

Domestic steel mills had been heavily relying on exports to overcome the sluggish demand in the home market. After a gap of three years, India became a net exporter of steel in FY17 with exports surging by more than 100 per cent.

“The global steel industry still suffers from significant overcapacity, which would limit the upward movement of international steel prices. In a period of subdued export realisations, the possibility of pushing higher volumes in the domestic market cannot be ruled out, thereby exerting pricing pressures in the domestic markets as well,” Roy added.

However, the domestic steel industry is protected by the imposition of the five-year anti-dumping duty on imports of hot-rolled and cold-rolled flat steel products. In the meantime, it would augur well for the industry if demand picked up by the push from the National Steel Policy and the policy for providing preference to domestically manufactured iron and steel products in government procurement.

PRICE CORRECTION

• Coking coal fell from $314 a tonne in mid-April to $170 a tonne in mid-May
• Private iron ore miners in India have reduced prices by Rs 150-200 a tonne
• Steel prices corrected Rs 2,750 a tonne in May, rolled over in June