Steel prices are at multi-year highs. When will these cool down? Mills do not have an answer because of the cost pressure. In the short to medium term, the cost impact worldwide on mills will be $200-250/t. Even if 50% of this is passed on to customers then the market is looking at a $100-120/t price increase.
Speaking about the impact of coking coal prices on the cost of Indian steel producers, Ranjan Dhar, Senior Vice President and Chief Marketing Officer, AM/NS India, said Australian premium low vol HCC prices have gone up to around INR 23,500/t levels since Jan’21. At the steel level, this translates into a cost impact of INR 18,000-19,000/t. On the other hand, domestic iron ore prices reduced by around INR 1,000/t. At the steel level, this was an INR 1,900-2,000/t drop versus INR 19,000/t increase in coking coal. Dhar was speaking at SteelMint Engage, a recently organized five-day webinar series.
“The net net impact is high,” Dhar said, adding that the cost impact is going to stay here for a long time. Certain costs will come down while others will increase. If a mill does a carbon net neutrality, the carbon costs will spurt. At such high costs, lesser number of mills will be able to produce commercially viable steel. Therefore, some capacities will go off, especially those which are not environment-friendly in the long term. “So from such perspectives, steel prices look to remain elevated in the long term”, Dhar said.
Will manufacturing take a hit?
Dhar does not see manufacturing taking a hit on the back of the coal crisis, because import dependency for power generation is limited to 25-30% and which is also being plugged by Coal India. “CIL’s production is going up. So I do not see this translating into a coal crisis. India started the calendar on a good demand note, which was truncated by Covid’s second wave. So that latent demand is still there. We are noticing this from October itself,” he said.
The growth of manufacturing in India was curbed in August by the pandemic and rising input costs. However, the short-term manufacturing PMI will remain in expansion mode, he said, with Sept’21 figures rising to 53.7 against August’s 52.3, while October’s are expected to pick up further.
Domestic demand
India is a domestically focused economy and the capacity extensions happening in both raw materials and finished goods are largely for the needs of India.
Indian flat steel demand-supply dynamics look robust. “Imports will keep declining. So will exports. The industry exports only when there is lesser domestic demand. In Jan- Feb’21, when domestic demand was good, exports were low. But, demand fell due to Covid and mills started exporting. We can expect this trend to play out Jan’22 onwards when domestic demand is expected to be high,” Dhar indicated.
Demand drivers: Continuing to dwell on the demand drivers, Dhar said construction will grow at 6.8% next year and capital goods at 4.5%. He is upbeat on auto too, expecting it to recover lost ground (due to chip shortage in CY’21) next year by growing at 10%, while Railways is likely to grow at 6.9%, consumer durables at almost 14% and intermediate goods, at 8-9%. “Each consuming sector will do very well starting January,” he sounded optimistic.
Talking about heavy plates, in which AM/NS has a strong presence, Dhar said, the short-to medium-term demand has been lagging behind. The cost of making heavy plates is higher than the cost of making coils. But plates remained below coils selling prices due to lesser infrastructure demand. However, he noted a huge demand recovery in the last 2-3 months because infrastructure and ship-building are coming back worldwide.
HR-rebar spread: As per Dhar, rebar is a volatile product where price movements are dictated by demand-supply. Rebar, he feels, has entered a high-price regime and will remain there for some time, because, worldwide, construction demand is improving, and supply-side remains under control.
Rebar’s spread with HRCs and CRCs from mills’ side was a wider INR 10,000/t although this narrowed to INR 5,000/t at the trade level. Earlier, globally, the spread had expanded to INR 25,000-30,000/t against India’s around INR 18,000/t. “It should stabilise, not in the range where it was earlier because the cost structure has gone up, but in the range of INR 10,000-12,000/t,” he forecasted.
Exports
India has potential to become a larger-scale exporter. But he was quick to clarify that generally importing countries largely buy commodity grades and source speciality steels locally. “I feel India will increase the pace of value-added exports. It can be a credible long-term value added partner,” he insisted.
Europe: This zone bought more than required in the past few quarters and thus the overhang has remained till Dec’21. Prices for Europe and South East Asia usually played in a similar range with the US always being higher. But early this year, the Europe benchmark changed drastically because of speculative buying by traders there. “Europe has been India’s traditional market and it will come back to buying from November for Jan-Mar’22 which is a normalization of the scenario,” he said.
He also clarified that Indian mills will participate when quotas reopen but there will be no oversupply. “Customers and suppliers both will be cautious,” he indicated.
SE Asia: “Although there have been price disruptions, we anticipate this phase will end, even for Russian mills, because of the cost impact worldwide, of $200-250/t. We will have to see how much of that cost gets passed on to the market. Buyers were in wait-and-watch mode with Russians quoting lower while Indian mills were offering at $900-920/t. Indian mills have done some deals and this will only progress further,” he said.
Way ahead?
“India is not posing a threat to the world economy. It will not keep producing goods and services to such an extent that it will dump into other countries. The incremental production will get exported,” Dhar observed.
As per the IMF, India, in 2022, will be one of the topmost growing economies in the world.
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