- Large steel mills may operate at optimal capacity
- Demand from project, automotive segments relatively better
- Prices likely to remain range-bound
Morning Brief: The demand rebound expected in November snowballed into a mixed trend. Projects did need-based buying while stockists avoided procuring. Mills, large and small, operated at less-than-optimal capacity amid the exports plunge. The export tax removal failed to immediately ignite overseas sales. SteelMint takes a look at what may happen in December.
Production guidance intact for tier-1 mills
Many tier-1 mills are still operating at lower capacity even after taking maintenance shutdowns around August-September. Secondary ones too are working under lesser capacity utilization. Of the primary mills, those producing via gas are more under pressure while secondary mills are bracing for a rise in pellet, sponge and scrap prices. One primary mill was heard to have curtailed hot rolled coil (HRC) production and procuring domestically and via imports.
However, SteelMint understands that primary mills are likely to operate at optimal capacity in December on expected demand upturn. Most have kept their production guidance intact.
Demand from infra, automotive relatively better, but stockists to go slow
Domestic demand from the project segment (infra and construction) is intact and likely to remain decent in December as well. With only four months left for the financial year to end, government project developers will be in a hurry to meet deadlines. This will keep demand robust, going forward. Developers have orders in hand and in such a scenario need-based buying also translates into good sales towards the year-end. One infra company, for instance, is now procuring around 20,000 t monthly since it feels prices have bottomed out. “We want to secure good volumes at lower prices,” a company official told SteelMint.
Domestic demand will remain bolstered for flats since around 70% of CRCs go into automotive segment. Hence, mills are not feeling the pressure on HRCs and CRCs at present in the domestic market.
The trade channel, however, is showing an aversion to procuring, which is pulling down overall domestic demand somewhat and this may continue into next month too. Stockists are saddled with inventory bought at higher prices. One may recall, HRC prices had touched INR 75,000/t levels some months ago to gradually fall off to INR 55,000-56,000/t. Stockists want to offload expensive material but are unable to as engineering end-users and other small-scale buyers have slowed down lifting. Engineering exports are meeting a stumbling block in inflation and Europe’s demand slowdown. The trade channel is thus holding on to inventory.
Coated, galvanized exports under pressure, market waits for EU comeback
The export duty may have been removed but, global demand is yet to pick up. Southeast Asia, which was once a good market for India, itself has turned into a large exporter. China, Japan and Vietnam being prime examples. Europe has not been buying so far but chances are it may return soon to stock up ahead of the Christmas and New Year holidays or perhaps even after the vacation period is over — this would mean, from early next calendar.
However, Indian primary mills are not under much pressure to export either at present. One, because, first, a large mill, whose production is almost 70% gas-dependent, has had to curtail output because of raised gas prices. The mill is procuring some HRC volumes domestically and via imports to bridge the demand gap. Under normal circumstances, Indian mills export around 500,000 t of HRCs per month. However, this volume has fallen to a mere 100,000-150,000 t in the last few months, “because of the export tax previously and now also due to the curtailment in flat steel production from one large mill,” informed a source.
However, colour-coated and galvanized steel, for which there are export allocations at present (but not for HRCs-CRCs), are facing huge constraints due to lack of global demand and are seeing sharper corrections compared to other flats prices. Inventories of the same have also increased with mills, especially since the key market is Europe. Around 2 mnt of galvanized and coated items are exported annually in which the share of EU is over 70%.
Imports to continue in small parcels
Imported HRCs are entering India but selectively, SteelMint understands. Most of these are for strategic applications by mills themselves. Others are being booked by pipe makers. Overall, few bookings have been done from Vietnam, but volumes are small. This trend is expected to continue into the short term.
Dilip Oommen, ISA president and CEO, AM/NS India, told SteelMint that imports are a bother. With the export duty imposition in May, India became a net importer instead of a net exporter in October but he hoped the situation would reverse soon.
Prices to remain range-bound
Mills are heard to be negotiating with large customers to match the landed cost of imports to stave off imports. Mill-level HRC prices remained range-bound in October and trade-level prices are likely to remain lukewarm in December as distribution channels struggle to liquidate inventory.
Inventory
Since mills, large and small, have been operating at lower production levels, their inventories have not hit alarming levels and may remain under control in the coming month.
Post-the export duty imposition in May, total mill-level stock increased 20%, as per industry sources.
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