Major Indian steel mills have announced a substantial increase in flat steel prices by around INR 2,000-5,000/t in Jan’21.
Effective (exy – Mumbai) prices by major steel mills:
Factors driving the price hike:
1.Increase in raw material prices India’s state-owned iron ore miner – National Mineral Development Corporation (NMDC) has announced a price hike in iron ore for Jan’21. Prices have increased further up to 10% for its Chhattisgarh based mines. In Nov and Dec’20, NMDC had increased iron ore prices twice. The miner has raised the price for Baila fines and lump by around INR 200/t and INR 500/t respectively while that of DR CLO by INR 580/t. Last month, the company’s fines had already hit an all-time high while lumps have now hit an eight-year high in prices.
2.Supply crunch-Major steel mills are pushing prices on tight supply since they are working with limited inventories. Thus, mills are unable to provide sufficient stocks to the trade sectors. “Mills are supplying only 30% of MoU quantities because of shortage”, shared a major stockiest based in the Faridabad region. Few trade participants based in Chennai shared that supply constraints will continue till March because a major steel plant based in Vijaynagar is undergoing its expansion plans.
3.Optimism in the auto sector-Automobile sales in India are poised to grow in double-digits in 2021 amid boost from a faster-than-expected recovery in economic activity and the announced vaccination drive against covid-19. A majority of vehicle manufacturers ended 2020 on a positive note, registering good wholesales growth, and entering the New Year with cautious optimism driven by expectations of a V-shaped economic recovery. Maruti Suzuki India Limited and Hyundai Motor India Limited, sales in Dec’20 grew,14.6% and 25% y-o-y, respectively. Tata Motors domestic passenger vehicle sales jumped to 84% y-o-y. M&M Farm Equipment posted 23% y-o-y growth in domestic sales in Dec’20.
4.Optimism in white goods sector-White goods industry hopes 2021 mirrors the second half of 2020 in growth trends. While the H1 2020 was adversely impacted due to the pandemic-induced lockdowns, pent-up demand and evolving consumer needs for convenience, hygiene and in-home entertainment in the H2 2020, enabled the industry to record strong sales in the second half of the calendar year. Vishal Bhola, Managing Director, Whirlpool of India said, “Post the festivities, momentum seems to be continuing. On the medium to long-term front, we foresee double digits growth for Q3 and Q4 (FY 20-21). If there are no disruptions on account of Covid-19 and we have a good agricultural season, we will witness a strong 2021.”
5.High international prices-Post holidays, major Chinese steel mills witness rebound in export offers hovering around $710/t FoB on higher domestic prices and strong futures. Meanwhile, Japanese and South Korean mills continue to offer HRC on the higher side due to limited allocations. This prompted Indian steel mills to keep Indian prices higher.
6.Huge gap between the trade price and mill’s offer-Major steel mills are offering HRC at INR 54,000-55,000/t (exy- Mumbai). However, trade prices are currently hovering at INR 58,000/t (exy- Mumbai). Prices do not include GST extra @ 18%. This provides enough headroom for Indian steel mills to increase domestic flat steel prices in Jan’21
Prices in the trade segment: As per SteelMint’s benchmark price assessment, domestic HRC prices stand at INR 57,500-58,500/t and CRC prices at INR 68,000-69,000/t (exy-Mumbai). The prices mentioned are basic and GST @18% is applicable.
Will the price levels sustain?
The Indian Steel Association in a media report has stated that there is presently an “acute shortage of iron ore” and the industry is facing “testing times” as the iron ore supply has been badly squeezed, among other factors.Both producers and raw material suppliers have written to the Prime Minister’s office. Consumers of steel, such as electronic manufacturers, are also seeking a regulation in the prices and a 15% export duty. We will have to wait and watch how the situation unfolds.
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