This week, Indian steel mills have sharply raised HRC and CRC prices by around INR 3,000-4,000/t for June deliveries to reduce the gap between international and domestic pricing.
Recent hike by major Indian steel mills:
- JSW Steel Ltd announced a significant hike in its list prices of HRC by INR 3,150/tonne (t) and CRCs by INR 4,900/tonne (t). Thus, HRC now stand at INR 70,000-70,500/t and CRC at INR 87,500-88,000/t.
- AM/NS India has announced a steep hike in HRC and CRC prices by around INR 2,000-3,000/t ($27-41) for June’21 deliveries. The list prices for HRCs stand at INR 70,000-70,500/t and for CRCs at INR 85,000-85,500/t.
- Prices are on an exy-Mumbai basis, excluding GST @ 18%.
Why are HRC and CRC prices moving northward?
1.The landed cost of imports is higher compared to domestic prices: Major Chinese steel mills are offering HRC at around $1,020-1,030/t CFR India while Japanese mills are offering HRCs at $1,100/t CFR basis However, on the other hand, after the recent hike by Indian mills, the list price of HRC is around INR 70,000/t (exy-Mumbai). Thus, there is a large disparity between global and domestic prices providing enough headroom to Indian steel mills to lift the prices in the local markets.
2.Europe- Union to announce fresh quotas for exports from India- Due to strong sentiments in European markets, Indian mills will offer HRC exports at elevated levels. Notably, European Union is yet to declare fresh quarterly quotas for shipments of HRC into Europe. Participants highlighted that the quotas are expected to be extended for yet another year with some changes in volumes. This, however, is yet to be announced. Higher HRC export offers will lead to increased prices in Indian markets since mills will be comfortable doing exports at higher price realization.
3.Steelmakers expect sales to rebound- As the COVID cases in India are witnessing a declining trend, thus in few states where the COVID situation has improved significantly, has allowed some relaxation in commercial activities. Thus, steelmakers are expecting pent up demand which triggered a price hike in domestic markets.
Along with this, SteelMint’s benchmark prices for 2.5mm hot-rolled coils (HRC) increased by around INR 2000/t against last week and stand at INR 66,000-67,000/t (exy-Mumbai). The prices mentioned do not include GST @18%.
*Prices mentioned are as per SteelMint HRC price methodology
However higher prices seem difficult to absorb in the traders market –
1.Market is expected to remain sluggish – Sales of automobiles, televisions, air-conditioners, refrigerators and washing machines fell sharply in May, with the Covid second wave and the ensuing local lockdowns disrupting both production and retail channels, even as consumers cut back spending. Sales of TV sets, air-conditioners, refrigerators and washing machines in May plunged 65% over April. The country’s largest carmaker Maruti Suzuki India, which shut production from May 1 to May 16 so as to divert oxygen from industrial use for medical purposes, reported domestic dispatches to dealers at 32,903 units last month, down 75 % from 1,35,879 units in April this year. Thus, recovery in states where the restriction has been eased is expected to remain slow in June 21.
2.Chinese government may announce tariffs on exports – The Chinese HRC export offers are on hold from the beginning of the week as mills are awaiting an announcement on the tariffs on exports. China’s National Development and Reform Commission (NDRC) held a meeting last week with major companies and associations representing the iron, steel, and non-ferrous sectors and issued a warning against illegal practices that are driving up steel prices. This announcement may hurt export offers and impact domestic prices in India.
3.Arrival of monsoon season- With the arrival of the monsoon season from mid-June onwards, construction activities will remain halted. Also, demand in the monsoon season usually remains sluggish. Thus limited buying may drag down the prices in the near term.
Near-term outlook- Major Mills has raised the HRC and CRC prices due to buoyant global prices. However, traders are reluctant to purchase material at higher costs. We also learn from the market sources that trade volumes are at 30-40% of the normal scenario. Thus, once the lockdown restriction eased out completely, we will have a better understanding of whether the market can absorb the price hike or not.
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