Global prices to drive domestic steel market despite near-term demand taper

SteelMint’s benchmark prices for 2.5mm thickness HRC stands at INR 66,500-67,500/t and CRC at 80,500-81,500/t exy-Mumbai. The prices mentioned above are exclusive of GST @18%.

*Prices as per SteelMint HRC price methodology.

Despite the possibility of domestic demand to be moderate due to rising covid-19 cases, we expect domestic steel prices to remain elevated on the back of favourable international price trends.

In the domestic market, the HRC and CRC spread has also reached an all-time high due to demand-supply mismatch.

The northward movement of the steel prices are likely to remain resilient due to the following factors:

1. Bullish overseas market- SteelMint’s Indian HRC (SAE 1006) export index stands at $970/t FoB East-coast basis, up by $20/t w-o-w against $950/t FoB basis. Indian mills have lifted HRC export offers to $1,000-1,020/t CFR basis for Vietnam. Indian HRC export offers are anticipated to remain high on higher export realizations as compared to domestic markets. Also, frequent lockdown in various states of India and lower domestic sales may open opportunity for increased exports in near term.

2. Costlier imports driving the domestic market- Indian mills have already increased their prices in the domestic market for May’21 deliveries. JSW Steel has increased list prices of HRC by INR 3,500/t and CRC by INR 5,500/t whereas AM/NS India has lifted its list prices of HRC by INR 4,000/t and CRC by INR 4,500/t. Despite the recent hike, there is still some room for a price hike by mills in the near future as imports still aren’t a viable option.

Will the price hike be absorbed in the domestic market?

Steel prices have reached unprecedented levels but the scenario on the demand side in the near term looks bleak as many state governments have implemented strict lockdown measures leading to supply chain disruption.

• Auto Industry- Auto sales took a significant hit in Apr ’21 given regional lockdowns, supply constraints and lower footfalls. The country’s largest carmaker, Maruti Suzuki, registered a de-growth of 8% m-o-m in domestic sales, Tata Motors’ domestic sales declined 41% m-o-m whereas Mahindra & Mahindra’s Farm Equipment Sector (FES), sales were down 11% m-o-m indicating that, unlike last year, this time rural sales are also impacted. At least five major automobile companies – Hero MotoCorp, Honda Motorcycle, Scooters India Ltd, Maruti Suzuki India Ltd, MG Motor and Toyota Kirloskar Motor Ltd have decided to advance their annual maintenance shutdown in all their respective factories to the first half of May.
• Consumer Durable Industry- Lack of enough manpower and ban on the use of oxygen for industrial use besides local restrictions in certain States, has adversely impacted the production of several consumer durable companies, especially in the cooling products segments. Kamal Nandi, President, Consumer Electronics and Appliances Manufacturers Association (CEAMA) said, “Without oxygen, companies making compressor products such as air-conditioners and refrigerators cannot run plants. So, while some players have already closed down manufacturing facilities, many others are also likely to do so in the next few days. Due to reverse migration, there is also a shortage of workers, apart from safety concerns. At the same time, the second wave of the pandemic has dampened consumer sentiment and there is already a drop in demand by 40-50 per cent compared to April 2019.”
• Real Estate Industry- For a sector that staged an impressive recovery after the first covid-19 wave in 2020, the second wave came as a rude shock. There has been a dip in property sales, new project launches and commercial rentals since last month due to semi-lockdowns and other localised curbs imposed by states to contain the virus spread. Homebuyers have become cautious in view of the Covid situation and avoiding any property site visits even if they are interested in buying a home. A number of transactions have also been put on hold as consumers are now opting to reduce spending on non-essential items including homes. This in turn will also hamper the growth of ERW Pipes and Tubes manufacturers in the country which extensively use HRC to make finished products.

Near Term Outlook-

The rally in steel prices in the global market has widened the gap between global and domestic prices beyond the peak levels of 2008, leaving headroom for further hikes by Indian mills, although we expect the domestic demand to remain moderate in the near term. However, the extent of moderation is too early to estimate, given that vaccination drive is ongoing and industry experts suggest that most sectors were better prepared to handle such a scenario as compared to last year.