Indian steel mills hopeful as demand rises, China eases Covid curbs

Prices have plummeted some 29% in domestic market after peaking in April

Steel prices corrected in November and December after India removed its export duty, but manufacturers expect that the New Year will bring the market stability.

Strong domestic demand for steel and China relaxing its zero-Covid policy fuel the expectation. Seshagiri Rao, JSW Steel’s joint managing director and group chief financial officer, said that steel prices corrected globally in November and that reflected in domestic prices, but December looks better.

“The demand has come down in Europe and also in the US, majorly attributable to higher interest rates to control inflation and fall in demand. China’s zero-Covid policy also impacted demand,” he said. “After relaxation of Covid norms in China, prices have moved upwards there.”

SteelMint’s data for the Indian market showed that the average price for hot rolled coil (HRC), a benchmark for flat steel, stood at Rs 56,100 a tonne in November and at Rs 54,100 a tonne in December. Rebar, or reinforcement steel, in long products was at Rs 56,100 a tonne in November and Rs 55,700 in December.

China factor

Global prices (FOB China) have increased 6-8 per cent in the last two weeks, bridging the gap between the landed cost of imports and domestic flat steel price, said Hetal Gandhi, director-research, CRISIL Market Intelligence and Analytics.

China FOB prices increased from $500-520 per tonne in early November to $565-575 per tonne now. “It needs to be seen whether prices move up further in China, spurred by eased Covid restrictions that lifted demand revival hopes,” said Ranjan Dhar, chief marketing officer, ArcelorMittal Nippon Steel India (AM/NS India).

China leads the steel market, producing about 54 per cent of world steel "Other regions in the world too are following the same direction in terms of prices. One more factor that drove positive sentiments is that some amount of restocking has been recorded in Europe after a gap of two quarters,” Dhar said.

India’s withdrawal of export duty is expected to help clear inventories though the global market is weak.

Steel prices

The question is whether the positives will reflect in steel prices that have plummeted some 29 per cent in the domestic market after peaking in April.

Rao did not expect the price volatility in 2022 to continue in the New Year. “There will be some stability in the overall pricing.”

While Dhar pointed out that continued raw material cost pressure was squeezing the margins. “This will also drive prices up.”

Domestic demand

Prices most likely will follow global markets, but experts have no doubt that the demand in the domestic market would be strong.

“We are projecting a steel demand growth of 6-7 per cent for 2023 largely driven by government capex,” said Jayanta Roy, senior vice president, ICRA.

Steel mills, too, are looking forward to strong demand. Bimlendra Jha, managing director of Jindal Steel & Power (JSPL), expected a strong period of demand.

Rao expected India will do well, adding that the "global economy will still be a problem for next year".

CRISIL’s Gandhi expected domestic demand to rise by 7 per cent in CY2022 and a robust 10-12 per cent in fiscal 2023.

The dampener for Indian companies is imports rising. Gandhi pointed out that prices, especially in the flat steel space, fell in November and December despite the removal of export duties on the back of cheap imports.

“Imports have started rising over the last few months, not only from traditional trade partners like Japan, Korea and China but also from Russia, thus leading to India becoming a net importer of finished steel over October and November 2022,” she said.

Mills cannot afford the demand to be substituted by imports, said Dhar.

POSITIVE CUES

• Global steel prices (FOB China) have seen an uptick of 6-8% over the last two weeks
• Restocking in Europe after two quarters; energy prices down
• Domestic demand expected to be strong
• Export duty withdrawal by government