Indian steel market has been witnessing optimistic sentiments since past one month. Flat steel prices have strengthened amid higher realizations in exports post hike in global offers and sharp rise in raw material prices – scrap and coking coal.
Major Indian flat steel manufacturers have already announced hike in offers by INR 500-1000/MT last week and market participants reported that they are eyeing for another hike by INR 1000-1500/MT within a week’s time.
However domestic long steel prices in India have witnessed a downtrend owing to dull demand from construction sector over monsoon. Semi finished steel prices – sponge iron have recently reported surge of INR 1400/MT in last ten days. SteelMint has tried to capture the factors which are driving up the market sentiments.
1. Rising steel exports – India’s steel exports have observed growth of 66% in Q1 FY18 against Q1 FY17. According to provisional data released by Joint Plant Committee (govt. of India) India’s total finished steel exports stood at 2.04 MnT in Q1 FY18 compared to 1.23 MnT in the same time period last year, thus up by 66%. In Jun’17, India’s finished steel exports rose by 1.1% to 0.65 MnT.
2. Better export realizations – Indian steel manufacturers are enjoying higher export realizations on account of better demand and higher global prices. Current export realization for a blast furnace billet would be around INR 28,000-28,500/MT (Ex-Mill), where as domestic realization would be at around INR 28,000-29,000/MT (Ex-Mill). Realizations in export was assessed at INR 25,000-26,000/MT (ex-mill) few weeks back. Thus it is evident that exports realizations have increased by about INR 2,500-3,000/MT in last few weeks.
3. Increasing coking coal and scrap prices – Coking coal prices, after falling to record lows post the Debbie cyclone incident; has been rising significantly due to aggressive demand for the commodity.
The prospect of domestic Coking coal prices going up in China has prompted the steel makers in that country to import Coking coal in large volume, for not only catering to their immediate requirements but also to stock the coal for future use.
The daily Coking coal requirement for the Chinese steel mills have also gone up due to the active steel production going on in China – necessitating bulk imports.
Akin to China, demand for Coking Coal has also remained strong in India, as steel production in India too is in full-swing. As the Indian steel makers are mostly dependent on imports for procuring adequate amounts of Coking Coal, the inflow of imports has remained largely uninterrupted despite the rising prices.
In line with the strong import demand impetus, Coking Coal spot prices in Australia have escalated to remarkable highs. Currently, the spot price of the Premium HCC is hovering at around USD 178.50/MT FoB Australia. In May’17, the price was considerably lower at around USD 145/MT FoB Australia.
Turkey – world’s largest importer of ferrous scrap has witnessed sharp hike in import prices by about USD 35-40/MT M-o-M owing to country’s strong domestic demand and hike in rebar offers. Price assessment for HMS (80:20) is currently at USD 318/MT, CFR Turkey. Following this, scrap prices all across the globe have moved up. Imported scrap offers to India have also moved up this week.
4. Lower iron ore production due to monsoons – India is the world’s 4th largest iron ore producer. According to the recently released data by Ministry of Mines, Govt. of India, the country produced 16 MnT iron ore in May’17 which was 14% lower compared to the production of 18.5 MnT in Apr’17. Indian iron ore production was down by 4% Y-o-Y as well compared to the numbers of May’16 where the iron ore production stood at 16.6 MnT.
India’s largest iron ore producing state – Odisha which contributes nearly 50% share in country’s ore output has registered 8% drop in its monthly iron ore production in Jun’17. The state produced 8.11 MnT iron ore in Jun’17 against 8.81 MnT in May’17. Production has fallen over prevailing monsoon season.
5. Absence of Chinese suppliers in global market – Tight supply and strong prices in the domestic market have enticed mills and traders to focus more at domestic market. Global buyers are less willing to buy steel from China as the price advantage is less as compared to other countries like Russia, India, Japan and Korea.
China’s steel exports fell in June, by 2.4% to 6.81 MnT. Over the first six months of the year, steel exports fell by 28% to 41 MnT, a level not seen in years.
At the same time, China has been working to reduce its steel overcapacity, bowing in part to international pressures while the country’s own agenda: its desire to reduce pollution. China has eliminated about 120 MnT of low-quality steel capacity in the first half of 2017.
Leave a Reply