India unlikely to benefit from metals' price fall

Not enough exportable surplus, export of copper against import of its raw material, nullifies benefits thereby

India is unlikely to benefit from falling base metals’ prices due to its relatively low presence in the exports markets and subdued domestic consumption. While copper cathodes are exported against imports of concentrates, steel makers also execute some export orders against imports of specialised steel.

In raw materials, too, the potential for an increase in iron ore exports has dwindled due to the restrictions imposed by the government on mining activities in major producing states. The volumes get offset by the imports of coking coal.

Domestic consumption of metals has been lacklustre due to slow economic growth and lack of execution of proposed investments in infrastructure development.

“While global prices have a direct impact on the Indian steel sector, domestic demand continues to grow at a lower rate of 3.5 per cent. India is not fully dependent on the global market for selling its products. Exports are taking place only to the extent of surplus material. If India’s gross domestic product growth returns to its normal levels of six-eight per cent, India will have not much surplus for exports,” said Dilip Oommen, chief executive and managing director, Essar Steel.

India imports four million tonnes of specialised steel that equals the quantity of exports of carbon steel, nullifying any advantageous effect.

Data compiled by Bloomberg showed the price of iron ore (63.5 per cent Fe) slumped 20.5 per cent to $123.5 a tonne from $155.3 a tonne a year ago. Poor demand pulled down steel (HRC) prices to $474 a tonne from $549 a tonne a year ago, a decline of 14 per cent. Lower operating capacity of steel mills to avoid a high inventory slackened coking-coal consumption, resulting in its prices falling 29 per cent to $144 a tonne from $202 a tonne a year ago.

“The US and Europe are showing signs of recovery, therefore the steel prices have moved up. Hence, the current global demand or price scenario is not the correct barometer to judge future demand and price levels.”

Led by a 22 per cent decline in nickel, base metals continued their downward spiral through the last year on a slowdown in the global economy. Base metals, which move in line with economic growth, remained underperformers due the continuous rise in inventories in the warehouses registered with the London Metal Exchange (LME). Copper, aluminium and zinc prices fell.

“India will hardly get any benefit from falling metals’ prices due to the lack of exportable surplus,” said Pukhraj Sethiya, consultant (mining), PriceWaterHouse Coopers.

Copper, aluminium and zinc prices fell 12 per cent, 19 per cent and six per cent, respectively, to trade at $7,174.5, $1,686 and $2,016 a tone, respectively, on the LME.

“The emerging global demand-supply dynamics is leading to consistent deficit as anticipated. We remain focused on driving growth while maintaining our cost leadership,” said Agnivesh Agarwal, chairman, Hindustan Zinc.

 

Meanwhile, Hindustan Zinc, India’s largest producer of zinc and lead, remained hopeful of a revival in demand in the rest of the year.