India’s domestic Hot Rolled Coil (HRC) prices have fallen further this week on rising inventories with traders and normalizing iron ore supplies.SteelMint’s benchmark prices for 2.5mm thickness HRC stands at INR 55,000-55,500 /t (exy-Mumbai), down by INR 250/t as compared to last week.
Key factors leading to price correction:
1.Rising inventories with traders- Traders are reluctant to procure material from mills at higher prices as they have sufficient inventories. “Traders are trying to hold the prices since they have enough inventories at the moment,” SteelMint learned from market sources. Thus, traders are reluctant to procure material from mills at higher prices. Meanwhile, auto vendors and OEMs are also showing resistance in procuring material from mills at higher prices.
2. Market is perceiving higher imports after duty cuts – Indian Govt. has reduced custom duty on steel imports to 7.5 % from 12.5%, in the recent Budget. This has dampened market sentiments as the end users are expecting HRC imports from non-FTA countries to increase, especially China.
3. Iron ore supplies normalizing- The overall situation of iron ore availability in India has been seeing improvement, after most of the mines have started operations post mines auction, as a result, India’s iron ore production increased by 10% m-o-m to over 20 mn t in Dec’20. Enhanced iron ore prices had been one of the premises for steel mills to hike prices till now.
SteelMint Analysis: Duty cut may not increase imports in the short to medium term:
As per our assessment, duty cut may not alter the market dynamics as only BIS certified mills in China can export HRC to India. SteelMint has learned offers from Chinese (BIS certified) mills at $690-700/t CFR India for April shipment, which would translate into Rs 55,000-56,000/t as landed cost of imports at Indian ports. Stockists would be therefore hesitant to import due to long period delivery in such a volatile market.
Asides from the above, there is a strong rumor that the Chinese Government may announce a possible adjustment in export rebates to 8-9% which is currently 13%. We learned that Chinese traders/mills are making offers based on the condition that buyers will have to absorb the rebate differential (which is about $30-35/t), in case if it is announced.
Source: SteelMint Research
Outlook:
Although some steel mills, in order to keep the momentum bullish, have raised list prices by up to INR 1,500/t on HRC and CRC. However we feel this hike may not be absorbed owing to stagnant demand and lower trades, and mills may compensate by offering rebates at month end. We expect steel prices to remain under pressure in the short term, however sharp correction is not expected as imports may not materialize as anticipated by the market.
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