Chinese import cheaper than Indian domestic steel prices; now under pressure

Saturday, 23 October,

SteelMint Exclusive

We expect domestic steel prices to correct in near term due to the rising threat of imports, potential increase in Chinese output/exports and softer global prices.

Domestic prices to potentially correct near term. Domestic HRC is Rs 32,000/MT, up 12% since July as inventories have moderated, demand has improved post monsoons and imports have slowed. But, domestic prices are largely influenced by import parity and prices are now at ~7% premium to Chinese import-parity post the recent price hikes. Also, we expect import pressure to rise over the next few months as

1) Chinese exports to India are now profitable despite the VAT rebate removal; and

2) import orders have risen in last few months

According to a report by J P Morgan, Chinese imported HR coil is cheaper by Rs 1,000-1,500/MT compared to domestic HR Prices. It also mentions the probability of increase in imports of HR coil from China, which is a major threat for domestic steel industry in short term.

Rupee appreciation is another threat for Indian steel prices. It will make import cheaper by approx Rs 500-600/MT. We expect steel industry will remain under pressure in short term.

Global steel prices to remain soft over next few months. The price hikes announced by producers in many regions are not sticking. Prices have corrected 2-7% across most regions over the past few weeks as demand is slow, inventories are balanced vs. demand and restocking demand is absent.

Scrap prices, a lead indicator of steel prices, is falling. Demand should soften further towards the year-end, which could exert further pressure in near term.