- Coated products experiencing cost push of around INR 5,000/t
- Lack of inventory to support demand till June
- Supply pressures to continue, helped by war, China’s production cuts
- Prices may see slight uptick from May
Morning Brief: Coated flat steel products are still labouring under immense cost pressure as prices of raw and input materials keep escalating. The coated segment is experiencing a cost push of INR 4,000-5,000/t. Colour-coated, which falls within coated, is seeing an additional INR 1,000/t over and above the latter.
If additional costs had led to a price increase of around INR 2,000/t in end-January, the pressure, say industry sources, has only increased. From hot rolled coils and zinc and aluminium to fuels and freight – all are headed north.
Price of the key raw material for coated products, hot rolled coils (HRCs), went up significantly because of the upsurge in coking and thermal coal prices with the latter inflating power costs. The average conversion cost has increased by INR 5,000-6,000/t over and above the increase in HRC prices. “If HRC prices increased m-o-m by INR 7,000/t, coated prices increased by another INR 5,000/t,” Sharad Mahendra, CEO, JSW Steel Coated Products Ltd, told SteelMint.
Over and above HRC, the next more expensive is power. Depending upon the product and thickness, power costs are up by INR 1,200-2,000/t. Incidentally, lower the thickness, higher the power consumption. Add to that the gas prices impact of INR 750-1,000/t.
Rising zinc and aluminium prices led to an almost INR 2,000/t increase in coating costs. For colour-coated, an additional INR 1,000/t due to the paint raw material push. “The currency depreciation made materials dearer since these prices are LME-linked even if you buy domestic,” revealed Mahendra.
If the average freight cost in India is INR 2,500/t, upward crude prices ensured an additional cost push of INR 500/t, making logistics dearer.
“Logistics prices are up 22-25% from February till now,” informed Mahendra.
“…The overall costs have increased principally on account of energy and raw materials’ cost rise. The price increases reflect the cost increases,” Akshaya Gujral, Chief, Sales Steering and Distribution, ArcelorMittal Nippon Steel India (AM/NS India) told SteelMint. He added: “Our order book currently remains good, as we have a good balance between OEM customers, construction, exports, and retail business.”
Present scenario
Usually, the first fortnight at the start of any new fiscal is slow. The market gets activated from the third week of April. Manufacturers say there is latent demand but it will catch up. “Normally, from last week of April till June is the peak demand period and the trend should not deviate this year,” said a source.
It is heard that inventory levels are not very high in the market at present, which should warrant good sales.
That apart, Indian prices are significantly lower than current international prices. In colour coated, prices are discounted by INR 17,000-20,000/t compared to those prevailing in Europe while overall coated prices are lesser by INR 10,000-15,000/t.
Gujral said: “We are entering the peak season for roofing demand before the monsoon. The market is yet to see the peak level of buying which is probably due to the slower absorption of the price increases. We expect to see more buoyancy in demand in May as roofing jobs need to finish before the start of the rains.”
Meanwhile, January-March, 2022 or Q4 was “good” domestically for coated products, as per market sources.
The total coated domestic market size is around 8 mnt while colour-coated is touching 3 mnt. JSW Steel is the largest domestic player with a leading 40% marketshare in coated and 55-60% in colour-coated.
Russia-Ukraine impact
However, the Russia-Ukraine war did not significantly increase demand for coated products. “Europe was impacted indeed but it did not buy coated products in large volumes because of the quota system,” said an official from a primary mill.
But export prices climbed up sharply in the wake of the war. India’s export prices are in tandem with current colour-coated prices of $1,750-1,800/t, which, in FOB terms, are hovering at $1,650/t.
Quotas will open up soon since the annual cycle runs from July to June. “Imports are planned from May itself, and we can see some action soon,” said a trade source.
Outlook
In India, the present trade-level landed prices of colour-coated in the western region are INR 105,000-110,000/t for 0.50mm thickness and galvanized, at INR 94,000-95,000/t (0.80mm).
Sources inform that input pressures will not allow prices to come down from current levels. If demand picks up, then prices will see an uptick of 2-3% at best from the beginning of May. “A rise beyond this will impact consumption. But, till April-end, prices will remain range-bound,” informed a reliable source.
Inventory levels in the market are not too high, which will support demand and prices, at least till June, feel sources.
“In the short term, overall demand will remain strong and robust. We should see higher demand in May, after which it will be slightly subdued due to monsoon which is the regular trend. Overall, we see strong growth in the Indian market,” said Gujral of AM/NS India.
But the cost pressures will continue beyond May, based on the fundamentals. Supply of steel and other commodities has been reduced by the war. This volume is not going to be available soon, although no one exactly knows for how long.
Plus, China’s continued production cuts will keep supply under pressure.
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