Steel input costs fall globally but stay firm in India

To fall further on weak Chinese demand, oversupply

The prices of steel-making raw materials have declined 25 per cent globally since January this year on sluggish demand from China, the world’s largest steel producer. While coking coal fell to $98-100 a tonne on Thursday from $132-134 a tonne on January 1, iron ore softened by 17 per cent to trade at $113.5 a tonne on Friday from $137.5 a tonne at the beginning of the year.

In contrast, however, iron ore prices in India have moved marginally upwards. India’s largest public sector miner, NMDC, raised fines (low grade ore with less than 63.5 per cent Fe content) by Rs 100 to Rs 2,910 a tonne. The company, however, kept the benchmark high grade lumps (Fe lower than 63.5 per cent) unchanged at Rs 4,500 a tonne. Global markets determine the price movement of coking coal in India due to the country’s huge reliance on imports. Hence, the prices of coking coal moved in India in tandem with those in global markets.

“It is not necessary that prices of raw materials move in Indian in sync with global markets. The local demand-supply situation determines their price movement irrespective of the global scenario. But, it would be unfair to say that the global price movement does not influence local prices,” said Ganesan Natarajan, director, Ennore Coke, one of India’s largest coke producers.

Interestingly, the absence of Chinese players from active buying has hit global steel and raw material markets badly. According to the China Iron and Steel Association, an industry body in China, steel prices in China fell to an eight-year low in March this year due to rising output.

The National Bureau of Statistics reported China’s daily crude steel production at 2.22 million tonnes between January and February this year despite weakness in demand and financial problems over dozens of steel mills. China’s average monthly crude steel output was recorded at 2.1 million tonnes in 2013.

China’s steel market has been in the doldrums this year over worries about potential debt defaults at steel mills, which triggered the biggest daily drop in global iron ore prices since 2009. A lower forecast of China’s economic growth at nearly 7 per cent for the next two-three years, against double-digit growth during the last few years, has lowered the potential of steel consumption in the country.

A Fitch Rating report estimated China’s iron ore stockpiles at 105 million tonnes as compared to a normal inventory level of 80-90 million tonnes. China's reliance on imported iron ore increases when its prices are low, as Chinese production costs are much higher due to the poor grade. “Indian raw material producers and traders are sandwiched between global suppliers and domestic buyers. The steel-making raw material market is likely to remain uncertain for the next 18 months,” said Natrajan.

A Goldman Sachs report has forecast global iron ore prices to decline further to $108 a tonne this year and to $80 a tonne in 2015.