Domestic steel prices inching up on rising cost, pick-up in demand

Currency depreciation of over 6% may have supported uptrend; industry players confident that prices have bottomed out

Steel prices in the domestic market have started trending up, signaling that the alloy may have bottomed out.

According to SteelMint data, the list price of hot rolled coil (HRC), a benchmark in flat steel, has been increased by major steel mills by Rs 1,000-1,500 a tonne for October sales. Prices started firming up marginally from the second half of September. But the fall since the peak levels is much sharper.

The list price of HRC from major mills was Rs 79,250-79,750 a tonne ex-Mumbai in April 2022 and stood at Rs 56,000-57,100 a tonne in September, SteelMint data showed.

The correction in steel prices is to partly offset the increase in costs and contain further fall in margins, said Jayant Acharya, deputy managing director, JSW Steel. “Prices have seen an upward correction in the international markets as well.”

“Coking coal prices FOB Australia had dropped to less than $200 per tonne and is now at $275 per tonne. Across the world, margins are under severe pressure as far as steel producers are concerned. August month’s numbers show that in Europe, production is down by 18 million tonnes (mt) sequentially ; China has also seen a moderation in production by about 6 per cent,” pointed out Acharya.

Ranjan Dhar, chief marketing officer, ArcelorMittal Nippon Steel India (AM/NS India) said currency depreciation of over six per cent and demand recovery are primarily responsible for the moderate rise in steel prices.

“Rupee depreciation has elevated the cost of coking coal - a key input for steel making that gets imported - along with gas, whereas the landed cost of steel imports has also surged,” Dhar said.

So, have prices bottomed out? One hundred and one per cent they have, said Acharya.

In fact, Dhar said that the higher input cost can be neutralised with a price rise of 5-7 per cent a tonne which will have to be done in phases till January.

“The current market dynamics are putting pressure on already squeezed margins. A normal level of margins needs to come back to the Indian steel industry for it to sustain its capex.”

Despite weak demand in key geographies, prices have started moving up in the international market as well. Global prices (Europe) witnessed some correction (upward) to the tune of 3–5 per cent over the last week of September in anticipation of demand improvement amid elevated costs, said Hetal Gandhi, Director, CRISIL Research. “Even Chinese steel prices witnessed a similar correction of 2-3 per cent.”

Demand recovery

Steelmakers say demand in India has been good across segments – automotive, infrastructure and appliances.

In H1FY23, demand was up over 11 per cent year-on-year, but that could be on a lower base, as Q1FY22 was impacted by the Covid-19 pandemic.

“We had projected a demand growth of 6-7 per cent and are sticking to it. But it will be fueled by government capex, since private sector capex is yet to gather momentum,” Jayanta Roy, senior vice president, ICRA, said.

Inventory build-up

The dampener, however, is the inventory overhang largely due to dwindling exports on account of the duty imposed by the government in May.

Inventory levels have risen from 8.0 mt as of March 2022 to 9.6 mt as of September 2022, said Gandhi.

Steel producers expect restocking to take place as inventory with customers is low. But muted prices amid rising coking coal prices and weak global sentiments are the headwinds facing the sector.