As demand tapers, steel firms rush to export market to clear stock

Poor offtake from almost all segments is prompting steel companies to divert material to export markets to clear stocks. 

At least two major steel producers said the stock position was around 45 days against 15 days that the industry general carries. 

Most of the producers said they were exporting more to bring down the inventory. Also, they were planning to advance maintenance shutdowns. Some cold rollers, on the other hand, have resorted to a production cut by around 50 per cent over the past few months. 

Senior Vice-President, ICRA, Jayanta Roy, pointed out that JPC figures show that the total finished steel stock at the end of April 2019 was at 9.93 million tonnes compared to 7.49 million tonnes in the previous year. At the end of May 2019, it was at 10.1 million tonnes vis-a-vis 7.4 million tonnes in 2018. 

According to producers, demand has tapered across segments. Auto sales have been skidding for almost four quarters now. Passenger car sales — an important indicator for the segment and the economy — have continued its downward trend with a 4.6 per cent drop in June. 

Consumer durables which had seen a good summer is also sluggish. “People are curbing on discretionary spending,” a steel producer said. 

Monsoon is typically a slow phase for the construction sector and whether it picks up after the season will have to be seen. 

Industry sources said steel demand for auto had dipped by 20 per cent, which for yellow goods is down by 40 per cent and construction 25 per cent. 

The demand from shipbuilding is at a five-year low and general engineering at three-year, said one of the major producers. 

The weak demand is telling on prices in both flat and long steel. 

Prices of hot rolled coil (HRC) in May was at Rs 40,250 a tonne and is now hovering at Rs 38,000. Prices of TMT bars have seen a deeper dive from Rs 35,000 a tonne at the end of May to Rs 30,000 now. 

One of the producers said even at lower prices there were hardly any takers. 

Though prices have softened globally, the decline in India appears to be sharper. Roy said Chinese hot rolled coil (HRC) prices have dipped by $20-$25 a tonne over the past three months, whereas Indian HRC prices have declined by close to $35 over the same period. 

Amid the slowdown, producers are pointing fingers at rising imports from FTA countries. Imports from Japan and Korea accounted for 49 per cent of total imports in FY19, compared to 45 per cent in FY18. 

The silver lining, however, is that raw material prices, especially coking coal, has come off its high. Coking coal prices are now hovering around $170 a tonne. 

Roy said international coking coal prices have softened by over $30 in the last three months, providing a cushion to Indian blast furnace operators. 

“However, given the lead time for procurement of imported coking coal, the full benefit of lower coal cost is unlikely to be realised by steel players in the second quarter. Consequently, the margin outlook in the second quarter for many domestic steel companies is weaker than the same in the first quarter, if domestic steel prices remain subdued in the next two months,” he said. 

Domestic steel producers are not expecting a recovery till November, which is when government spending on infrastructure is likely to be visible.