Indian steel prices are surging high, thanks to rising steel exports. According to Indian government data,steel exports from India has increased 19 % in July 2017 against June 2017 and 64 % Y-o-Y in July 2016.
Impact of rising exports were clearly seen on the prices. According to data maintained by SteelMint, HRC prices have increased by INR 2000/MT (equivalent to USD 31/MT) since last two months,however re-bar prices remained almost firm.
But will the momentum continue? This remains a big question. SteelMint tries to understand several factors which plays an important role to understand if the momentum will continue or not.
Steel prices are rising due to export demand rather than domestic demand
Rising Indian domestic steel prices is attributed to consistent increase in export numbers in last few months.Rise in Indian exports is a result of lower exports from China. Recently, Chinese government has directed to stop small induction furnaces which are not meeting the environment norms, creating a shortage of billets and re- bar in domestic market.
However China Iron and Steel Association (CISA) has warned rising prices in China are more speculative than real demand. Speaking to traders and manufactures in China, SteelMint learnt that prices may not drop significantly but may see some corrections in September as current margins are very high and this will prompt mills to increase production.
Indian Flat Steel prices increased higher than long steel prices
Indian flat steel prices have increased by INR 3000/MT,post GST implementation where as long steel prices have increased by INR 1200/MT in last two months. Indian real estate sector which is a major consumer of long steel remains dull since starting of the year. Factors like demonetization and new real estate regulation act has slowed down the construction activity.
Where as flat steel prices are supported by high export realization and lower imports due to safety measures imposed by Indian government. Flat steel prices may see some more upside as mills have handsome booking for exports, which is likely to continue till Chinese suppliers come back in the market.
Long steel prices may not move up to fast but chances of sharp correction is also limited. Notably JSW has reported drastic fall in long steel production in Q1 of FY18. Company reported a production of 0.217 MnT down by 4%, M-o-M basis in Jul’17 against 0.22 MnT in Jun’17 .However on yearly basis long steel production fell drastically by 28% against 0.304 MnT in Jul’16.
Insolvency and Bankruptcy Code
To tackle bad loans in steel sector, government has introduced insolvency and bankruptcy code , which helps troubled corporate, partnership firms and individuals in debt to re-organize and opt for insolvency resolution in a time-bound manner to maximize value of its assets.
Under this act, An IP (Insolvency Professional) is to be appointed by the regulator and approved by the creditor committee. IP will take over the running of the Company along with the control and power from the company’s Board of Directors. IP shall have immunity from criminal prosecution and any other liability for anything done in good faith. The IP has to come up with a revival plan in 270 days else company can go for liquidation.
This means, all those steel companies which are running under their optimum capacity and are under NPA (Non Performing Asset) may be forced to increase their output. This will lead to increased supply and may put some pressure on domestic prices.
Leave a Reply