Domestic steel players raise prices amid absence of green shoots

Next two-three months to test if domestic steel price hikes are sustainable

Domestic steel industry has been continuously raising product prices since November despite the absence of green shoots.

“There are no strong demand indicators, or green shoots, at all which can keep these price hikes sustainable. Demand from infrastructure is still to pick up and auto continues to be weak,” Sushim Banerjee, director general at Institute of Steel Development & Growth (INSDAG) told Business Standard.

Domestic steel producers have raised product prices by about Rs 2,000 per tonne for February.

“The February price hike is also in anticipation of a demand pick up that stockiest have stocked their yards. There is no on-ground demand so far,” Banerjee added.

Higher raw material costs, increased global steel prices and expectations of a demand pick up have been the only reasons for domestic steel producers to raise prices every month since November so far.

Currently, hot-rolled prices are ruling at Rs 40,000 per tonne in the domestic market, up from the 15-month low of Rs 33,500 per tonne rate noted in mid-2019. However, the current price point is far lower than Rs 47,000 per tonne rate for hot-rolled noted in October 2018.

Tata Steel, Sajjan Jindal-led JSW Steel, Naveen Jindal-led Jindal Steel & Power and state-owned Steel Authority of India (SAIL) are among the top steel producers in the country.

“Raising prices is fine. The question is sustainability of the price hike. Where is the demand?” said a Mumbai-based trader on condition of anonymity.

Meanwhile, some industry officials were of the view that customs duty levied on consumer durables in the Union Budget for FY21, could bring in mild demand in the market for steel.

“The slight demand from consumer durables is not enough to revive demand in the domestic steel industry,” said Banerjee of INSDAC.

Of the total domestic steel demand, majority comes from the infrastructure sector followed by the auto industry. A marginal part of about 10-12 per cent of the total steel consumption goes towards consumer durables.

"In our view, the contemplated price hike (in February) may not be fully absorbed as Japan FOB (free on board) price may follow the dip in CFR Vietnam price. Also as China’s price may slip when companies resume work on February 09. This may result in imported prices slipping to discount compared to domestic ones," said a note from Edelweiss Securities.

According to Joint Plant Committee data, during April-November, India’s domestic steel consumption stood at 66.5 million tonnes, up 3.65 per cent from same period last year, while production was at 67.66 million tonne, up 2 per cent from last year.

Industry officials are of the view, that the next two-three months would be very crucial for the domestic steel industry to test if the risen prices are sustainable, as the strong consumption period will continue until May.

“Dealers are priced the highest among other segments to which steel companies are giving the products. Demand is extremely weak and producers are simply being opportunistic,” said Mumbai-based dealer who is also a member of Bombay Iron Merchant’s Association.

The July-September period is usually considered as a slack demand season for  steel as industrial activity comes to a standstill across country due to monsoons. Meanwhile, traders are expecting some upside in demand from the real estate sector after the Reserve Bank of India (RBI) today announced some relief measures to boost consumer loans for housing.

“So far the only positivity that can be seen in the industry is that the uncertainty in terms of consumption pattern has gone completely. During the financial year, companies have had to cut capex due to demand slowdown. The industry has come out of that situation. That is the only real positive so far,” informed Banerjee.

JSW Steel decided to "recalibrate" its capital expenditure for this year and brought it down by Rs 4,700 crore. Tata Steel also revised the FY20 capex to Rs 8,000 crore from Rs 12,000 crore earlier.

Steel price hike

• November: By Rs 500-750 per tonne
• December: By Rs 1,000-1,500 per tonne
• January: By Rs 1,000 per tonne
• February: By Rs 1,700-2000 per tonne

Source: Steel Industry Traders