Steel prices race past peak levels of 2018, spreads at 3-year high

The market price for hot rolled coil (HRC) - a benchmark for flat steel - now stands at around Rs 47,500

Steel firms have increased prices by upwards of Rs 2,500 a tonne effective December, taking it beyond peak levels of 2018. From December 1, prices have been increased by Rs 2,500-2,750 a tonne for flat steel. JSPL has increased long product prices by about Rs 1,000 a tonne. 

The price for hot rolled coil (HRC) — a benchmark for flat steel — now stands at Rs 47,500-47,800. That’s higher than the peak of HRC in November 2018. HRC price had scaled to Rs 46,250 a tonne for a brief period then and dropped from the early part of December. The high price is in keeping with international prices. Jayant Acharya, director (commercial and marketing,) JSW Steel, said, steel prices have gone up internationally, reflecting better demand and higher costs. 

“Domestic steel prices are reflective of the same trend in India. However, domestic prices remain at a discount of 6 per cent to international prices. The current international price level mirrors that of the 2018 trend,” he said. Increased prices are for monthly and spot.

Acharya also said that international iron ore was at $83 in April and it’s at $130 now — almost at a new six-year high. Reduced availability of ore in the domestic front also put pressure on prices. However, while iron ore prices are at a high, coking coal prices are at a four-year low due to restrictions on Chinese steelmakers from buying Australian coking coal. Jayanta Roy, senior vice-president, ICRA, said, in terms of margins, this would be the best quarter in the past 2-3 years due to subdued coking coal prices.

Motilal Oswal has put steel spreads at Rs 33,000 a tonne for HRC and Rs 30,000 a tonne for rebar. “Indian steel spreads have risen 25 per cent in Q3 of FY21 and are at a three-year high. We expect spreads to stay strong on the back of a domestic demand recovery and higher regional prices. The improvement in Ebitda/tonne should be even higher on an improving sales mix (lower exports and higher value-added sales),” said Hemang Jani, head of equity strategy, broking, and distribution at Motilal Oswal Financial Services.

Players with captive iron ore are expected to reap maximum benefit from higher prices. After the latest round, rebar prices are at around Rs 47,200 a tonne. V R Sharma, managing director, JSPL, said the price level would be among the top. “The prices should sustain on a long-term basis. These margins are required by high capex industries like steel,” he said.

The market has, so far, absorbed the price increase due to a strong comeback in domestic demand. After an inventory pile-up in the first quarter, inventories are now below normal levels. The closing stock of inventories with the steel producing companies was at 11.42 MT of finished steel at the end of October, which is 3.64 per cent lower than that in the previous month and 10.16 per cent lower than the same month of previous year. Consumption of finished steel in October, though, registered an increase of 7.7 per cent on a month-on-month basis, but was lower by 2 per cent over October 2019.

Acharya said: “Recovery is much better than what was expected. Incrementally, on ground, every month the situation is improving. Rating agencies are revising GDP estimates. With economic activity picking up, the demand for H2 should be positive.” 

The pick-up in domestic demand is prompting companies to sell more at home. 

Ranjan Dhar, chief marketing officer, AMNS India, said: “Exports have come down drastically from their highs. It’s now at pre-Covid levels of 15-20 per cent since all are catering to increased domestic demand.”