What lies in store for Indian steel market in May, 2022?

• • Prices likely to correct next month
  • End-users may not absorb further price hikes
  • Demand for longs to be higher than in flat steel
  • Export deals may slow down amid subdued Europe, Vietnam markets

Morning Brief: April is ending with mixed feelings. Even as officials at large mills say they are looking at a possible price increase, it is an uphill task selling in the current need-based market. End-users, on their part, swear they are gasping at present prices. So, what will the Indian steel market look like in May? SteelMint takes a sneak preview.

Prices may see correction
Market sources informed SteelMint that prices will correct downward, even if not in the form of price drops but may be through discounts/rebates, from May but whether mid-month or even later is difficult to say. Inventory is building up at mills’ end, impelling such corrections.

Overall prices in flats may drop by INR 2,000-3,000/t amid lack of demand. A large mill will reduce HRC prices by INR 2,000-3,000/t, said a flat steel end-user source.

Another large mill has already shared that it will reduce coated prices for May by INR 3,000/t to perk up sluggish sales.

As per SteelMint’s benchmark price assessment, HRCs stood at INR 73,000-74,000/t ($953-967/t), down INR 1,300/t ($17/t) w-o-w while CRCs fell by INR 2,200/t ($29/t) to INR 83,000-84,000/t ($1084-1097/t) w-o-w. These prices are basic excluding GST at 18% on exy-Mumbai basis.

“Increasing prices next month is not a viable option since we are struggling to sell at current prices,” revealed a marketing official at a primary mill.

In longs, too, a leading longs player said, possibilities of a further increase are slim because downstream will not be able to absorb further hikes. “In fact, mills are offering slight discounts to pep up sales. Trade level long prices are at INR 72,000-75,000/t,” said the source.

“There is no trigger for a price increase. The Australian low vol HCC dropped by $57/tonne to around $450/t levels while thermal coal is highly scarce at present which is impacting power plants. But if there is any price increase, this will not be sustainable and may ricochet back to lower levels once thermal coal availability stabilizes. In any case, most mills have captive power plants. And coking coal, booked at comparatively lower contracts, will start arriving into India from June,” said the source.

“Power costs are not just affecting steel mills but downstream sectors too. If they stop buying because of high prices, then demand will take a sharp hit, which is highly avoidable. Thus, the environment is not conducive to another price rise,” said a source.

Cost push?
However, taking a contrarion view, a source at a leading mill said, flat prices may rise by INR 1,000-1,500/t, propelled by a 40% cost push in May-June. “This price hike increase will only cover 25% of the additional cost push,” the source said, adding that energy costs will remain high in May. The source warned that coking coal may start hitting the peaks again.

Demand to remain strong for longs, weak for flats
At ground zero, it is a challenge selling and thus any further hikes will not be absorbed by downstream users, some mill sources confided. Infrastructure consumption is minimal and need-based at present. “Any further increase will push us to the sidelines,” said a project source. “Though projects buy from mills directly, we did experience some downward price adjustments from mills lately with sales being so down,” informed a leading infrastructure construction source.

However, he added, May being the month that precedes monsoons onset, will see good demand for longs from project developers.

But flats are seeing weaker sentiments which will continue into May. Inflationary pressures kept bids low for finished steel and slowed down retail and end-user segments.

Exports bookings, prices to remain on lower side
Mills are quite well-booked till the third week of May. But not too many active bookings are likely for June onwards, because of two reasons:

• • Europe is not too keen to accept the prices Indian mills are demanding. China was selling at lower prices and if Covid lessens here then it will return big-time to exports. Even if it does not sell in large volumes to Europe, it is a price setter.

• • Vietnam’s import demand has dried up because of the propensity to buy cheaper domestic material. Russia-Ukraine dynamics pushed up logistic costs, making imports dearer. Moreover, it often value adds HRCs and sells to Europe but since the latter is showing lesser appetite, Vietnam too is not likely to buy aggressively.

“Mills are largely booked in HRCs for May shipments, also for early June, at some mills. Demand from the EU has slowed in the last couple of weeks amid holidays, production cuts by auto players, euro depreciation and sharp drop in Chinese export offers post-Covid surge,” corroborated a source.

Demand from the UAE too may be thin as it will prefer cheaper Chinese offers.

SteelMint’s India HRC export index dropped $20/t to $920/t FOB east coast against the previous week’s $940/t FOB. In contrast, Chinese offers ranged from $850/t FoB.

Billets and rebar export bookings have been limited from primary mills amidst Ramadan in Turkey and Middle East, weaker finished steel prices, and sharp fall in Chinese steel futures. Higher finished long steel realizations may keep Indian mills away from exports of billets. A recent BF route billet export tender received bids of around $710/t FOB against a price idea of $750-760/t FOB.

“Export prices are correcting. Europe is not very active except for sporadic deals. It bought frantically with onset of the war but is now well-stocked. Also, Ramadan being a slow month, deals are few and thus prices are moderating too,” said another source.