Steel prices weaken on local, global cues, short-term blip, say companies

While huge production cuts in China have driven down prices; companies see demand improving in international market going forward

After an increase in the beginning of the month, steel prices in the trade segment have weakened on the back of a correction in international steel prices and key input materials. But companies believe it’s more a short-term blip and sentiments will pick up going forward.

According to data from SteelMint, the price of rebar (long steel) in the trade segment was Rs 62,000 a tonne on November 5 and fell to Rs 60,300 a tonne on November 19. Hot rolled coil (HRC) in flat steel was more stable; it was at Rs 71,600 a tonne on November 3 and stood at Rs 71,000 a tonne on November 17.

Secondary producers, which account for about two-thirds of long steel production and use the electric arc furnace (EAF) and induction furnace (IF) route, have slashed prices. The IF-grade price ex-Mumbai was Rs 52,800 a tonne beginning November and stood at Rs 48,900 a tonne on November 25.

“Sentiments in China are weak and the pick-up in domestic demand is not to the extent expected,” said a secondary producer.

Flat steel is typically used in automobiles and domestic appliances and long steel primarily for construction and railways.

Pricing factors

The softening of prices is led by a combination of factors. “Rebar prices have softened," said Jindal Steel & Power (JSPL) managing director, V R Sharma, and added, “There is hardly any demand in the export market because of the Evergrande crisis and lower exports have increased availability in the domestic market.”

Though HRC is more stable in the domestic market, international prices have corrected from peak levels.

“Chinese steel export prices peaked in May at about $1,080 a tonne and are now ruling at close to $800 a tonne. In the US and Europe too, prices have come down from peak levels,” pointed out Icra senior vice president, Jayanta Roy.

On the raw material side, international iron ore has seen a major price correction, even though prices have increased somewhat in recent weeks. “On the other hand, coking coal prices have dropped from over $400 a tonne to around $350 a tonne now,” Roy added.

Underlying demand

However, companies don’t see a major correction. Sharma pointed out that scrap prices had increased as people concerned about CO2 emissions were opting for billets through the scrap route.  

“That has given an impetus to overall demand for scrap and billet prices have gone up,” he said. “If scrap prices remain at this level then rebar prices will bounce back and so will billet prices,” Sharma added.

Most companies believe that the underlying demand factors remain unchanged in the international and domestic market.

“In the domestic market, demand has improved in infrastructure, gas and water pipelines, high speed rail, yellow goods, wind mills, solar etc. Automotive has shown signs of improvement and should do much better in December and further improvement in January- March. There are certain products where we are fully booked out,” pointed out JSW Steel director (commercial & marketing), Jayant Acharya.

Acharya also said, internationally, demand was expected to further improve in the next quarter on higher spring/summer requirements and changing trade flows. Sentiments in the long product segment, he believes, is likely to improve from December with many new projects picking up momentum.

Production cuts in China were also playing out, which again, is holding out hope.

Steel spreads

Steel spreads at current prices levels are expected to be strong though Q4 may be impacted by high coking coal prices.

According to Roy, the full impact of high coking coal price will possibly be felt in Q4. “So steel spreads may moderate in Q4 from the current levels, but are still expected to remain healthy. From a credit perspective, cash flows would remain strong for leading steel makers while their capital structures would also improve,” he said.

WEAKENING SENTIMENT

• SteelMint: rebar price in the trade segment was at Rs 62,000 a tonne on November 5 and fell to Rs 60,300 a tonne on November 19; IF-grade rebar ex-Mumbai was at Rs 52,800 a tonne on November 1 and stood at Rs 48,900 a tonne on November 25

• HRC in trade segment was at Rs 71,600 a tonne on November 3 and stood at Rs 71,000 a tonne on November 17 according to SteelMint

• International prices correct from peak: Chinese steel export prices in May was at about $1080 a tonne and now at ruling at close to $800 a tonne