Domestic trade level prices of hot-rolled (HR) and cold-rolled (CR) coils have come under pressure this week. These dropped w-o-w by INR 500/t and INR 600/t respectively in the Mumbai market.
The prices dropped towards the beginning of the week after having increased in the previous week. Restocking by the distribution network was mostly done towards end-September. Also, end-buyers were heard deferring their purchases to the post-Diwali period. This has slowed down market activities, which, in turn, is weighing on trade-level prices, informed reliable sources.
SteelMint’s benchmark assessment for HRCs (IS2062, 2.5-8mm) stood around INR 56,500-57,500/t while those of CRCs (IS513 Gr O, 0.9mm) is at INR 65,000-66,000/t. Prices are on an exy-Mumbai basis, excluding GST @ 18%.
Why are trade prices correcting?
1. Restocking cools down, buyers move to sidelines: Trade channel activities have slowed down this week as buyers have started moving to the sidelines ahead of the Diwali festival. “Trade activities are still happening but are now lower as compared with the past couple of weeks when there were more buyers,” informed trusted sources.
Moreover, most of the distributors were heard to have replenished their inventories by end-September, expecting a price hike by mills for early October sales. It is to be noted that a few steel producers had increased their HRC and CRC list prices by INR 500/t around 21 September and further by INR 1,000/t in the first week of October.
2. End-user segments cautious over inflationary concerns: Unlike the last festive season, this October, end-users are still pessimistic when it comes to discretionary spending. To add to this, consumer inflation spiked more than expected to a 5-month high of 7.4 % in September while the industrial production data contracted for the first time in 18 months, declining 0.8% in August from a year earlier. For instance, MSIL, which is the largest auto maker in the country, produces 1.8 lakh cars per month in the festive season but this year the production plan is heard to be around 1.5 lakh cars only, sources informed SteelMint. With no respite from inflation, the RBI may increase the repo rate by another 50 bps in December which will further dampen end-user buying sentiments as retail loans will get costlier.
3. Participants exercise import options: Steel industry participants are heard to be booking HRCs for imports from other countries recently. Deals for imported HRCs to the tune of 80,000-100,000t are being heard bound for India from Japan. Out of these, some tonnages are heard to have been booked at around $600/t CFR India. However, these deals could not be confirmed till the time of publishing this article. The landed cost, Mumbai basis, would be around $618/t (roughly INR 50,900/t) which is cheaper by INR 6,100/t compared with the prevailing domestic price levels of INR 57,000/t.
A steep depreciation of the yen against the dollar has made Japanese mills active in exports lately. Meanwhile, lower buying interest from the European markets has made Japanese mills shift focus to the South Asian and Southeast Asian countries.
It is likely that the trade level prices shall remain range-bound in the short-to-medium term as the demand remains lukewarm this festive season.
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