Domestic hot-rolled coil (HRC) prices, which remained much higher than the anti-dumping duty (ADD) levels throughout FY2018 and FY2019, have corrected steeply, dropping below the ADD stipulated level for the first time in the second week of October 2019, according to an Icra report.
The decline in HRC prices the past few months is due to weakening domestic demand.
Icra said in its report that as per the definitive ADD imposed on certain flat steel products in May 2017, which are valid till August 2021, the threshold price for HRC stands at $489 per tonne (about Rs 34,719 per tonne at USD/INR exchange rate of 71), which in turn sets a floor price for the domestic HRC.
“India’s HRC prices fell to a 34-month low of Rs 34,250 per tonne in the second week of October and have fallen by 16 per cent in the current fiscal, following lacklustre demand from the key end-user industries,” Jayanta Roy, senior vice-president & group head, corporate sector ratings, Icra was quoted as saying.
Despite the ADD setting a floor to domestic HRC prices, the fact that a series of price cuts undertaken by the domestic steelmakers have taken Indian steel prices lower than that floor points to heightened concerns about demand conditions, Roy added.
Icra further notes that the difference between domestic and imported HRC prices has widened in recent months with the current local HRC prices trading at a discount of 13 per cent to landed prices.
China’s HRC export prices were hovering at $420 a tonne at the time of imposition of the ADD, a level slightly lower than the current Chinese HRC price of about $430 per tonne.
Apart from international steel price trends, domestic steel prices also take a cue from the local demand conditions, which have turned unfavourable in recent months.
India’s steel demand growth dropped to 5 per cent in H1 FY20 against much higher growth rates of 7.5 per cent and 7.9 per cent achieved in FY2019 and FY2018, respectively.
While the domestic steel consumption growth during Q1 FY20 stood at 6.9 per cent, the growth rate during Q2 FY20 eased to 4 per cent, with the consumption reporting a Y-o-Y contraction of 0.2 per cent in September 2019, said ICRA.
Moderation in steel demand is largely attributable to the weakness in the automobile and construction sectors. The auto sector continued to witness a fall in sales, with sales de-growth during Q2 FY20 remaining higher at 18.1 per cent than Q1 FY20 de-growth of 10.5 per cent.
Even the construction sector output growth deteriorated to a seven-quarter low of 5.7 percent in Q1 FY20 from 9.6 percent in Q1 FY19 which along with a softening of growth in gross fixed capital formation (GFCF) to 4 percent in Q1 FY20 from 13.3 per cent in Q1 FY19, reflects the headwinds being faced by the steel sector.
With the widening of the gap between domestic and landed steel prices in recent months, Indian steelmakers have been focusing more on export markets, and steel exports have consequently increased in the last two months.
“India’s steel exports, which reported a de-growth of around 27 per cent during Q1 FY20, grew by almost 34 per cent in Q2 FY20, with exports growing by over 60 per cent and 70 per cent in August 2019 and September 2019 respectively,” explained Roy.
As a result, the excess of India’s steel imports over exports reduced to negligible levels in H1 FY2020 as against 0.71 million tonnes in Q1 FY2020. However, a 12-per cent fall in Chinese export HRC prices since August 2019 could act as a fresh challenge for domestic steelmakers looking to augment exports amid depressed domestic demand conditions, he added.