Come September, how will the Indian steel industry perform? What are the factors to watch out for? SteelMint takes a peek into the upcoming month.
- Production
Almost all the primary mills are back to operating at over 92-94% capacity, with the pandemic’s second surge abating. JSW Steel (Vijayanagar) opted for a planned shutdown but since this is happening in phases, there is not much impact on production, SteelMint understands.
The smaller mills, which had been operating at around 50-60% capacity, because of the demand slump and hike in raw material prices, have also started increasing production. The drop in raw material prices and improved production from the sponge players are helping the smaller mills to return to normalcy.
Outlook: Thus, crude steel production, which was at 9.8 million tonne (mn t) in Jul’21, may see a rise to 10-10.5 mn t in Sept’21, as per SteelMint’s estimates.
- Demand
In long products, demand seems to be sustaining except that the drop in IF-route (Fe 500) rebar prices to just above INR 49,000/tonne (t) exy Mumbai levels since last week led to some bearish sentiments. However, overall, deals are taking place despite the primary mills having opted for two price hikes in Aug’21.
In flats too, there is relatively a better demand compared to last month. The consumer durables industry reported good numbers in Q1FY’21. The auto sector is also seeing a rebound with most of the manufacturers reporting y-o-y higher sales growth. Dealers say that auto demand has improved.
Outlook: Finished steel demand in Jul’21 was at 7.66 mn t but September may better that figure since end-user demand is improving m-o-m. In longs, demand will be fuelled by resumption in government infra projects since the monsoon will get over by end-Sept. Builders and contractors will start stocking up. Flats are well placed compared to the last couple of months with demand for consumer durables and auto buoyant. The only challenge in domestic flats demand is the semi-conductor shortage, which may lead to lowered auto production and impact steel consumption.
- Exports
Export demand is down. The reasons are not far to seek. South East Asia, especially Vietnam, are under lockdown and thus not many deals are emerging from there. Quotas to Europe, predominantly a flats market, have been exhausted. The situation is similar with semis and longs with demand from China very subdued because of production cuts, Covid surge, vessel issues, uncertainty on the export tax etc.
Outlook – Mills are scouting for newer markets like Turkey, South Africa, Latin America, but exports to these destinations cannot match the numbers to Europe, Vietnam or China. Overall, September export numbers may be less compared to the previous two months.
- Prices
Domestic demand is not bad, but exports outlook is bearish. Thus, mills are under pressure to liquidate stocks. A State-owned mill was heard offering rebates in the Kolkata region, subject to the quantity being lifted by the distributor.
In longs, the larger mills had opted for two price hikes in Aug’21 – of INR 1,000-1,500/t in the first week and again of around INR 500-1,000/t mid-month. But this did not dent demand, as per the mills.
Outlook: SteelMint learnt that HRC and CRC prices are likely to correct in the coming days, but it is not yet not clear whether this would happen through rebates, roll-over or reduction. In longs, sources inform, mills will either roll over or opt for a price increase in September. If this hike does not get absorbed then they will offer discounts or rebates towards mid-Sept.
Another source said, demand will improve for longs in September but a price hike may not be on the cards because raw material prices have dropped of late. This would allow secondary mills to increase production. Also, exports will be lower in September and so mills would need to sell in the domestic market. “Prices may not fall but they may not increase either, especially in longs,” the source said.
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