Rebar manufactures based in all major secondary market has sharply increased offers by INR 1,500-2,000/MT after the day government announced demonetization on 8 Nov’16. However, market did not accept the increased prices owing to sharp fall in demand and it negatively reflected in the pricing. Presently, 12MM Mumbai rebar price are at INR 26,700/MT compare to INR 26,700/MT on 8th Nov’16 (no change in price) in secondary market.
Major reason for non acceptance was cash crisis by Rebar end user buyers. Mr A.K. Bharghav, Chief Executive, All Indian Steel Re rollers Association (AISRA) said,
“Post-demonetization of Indian rupee, we saw there is a severe shortage of funds in the market which hit the trade for all industry and it may take another two- three months to normalize the situation.”
Whereas primary producers SAIL, RINL, JSW steel, JSPL that increased rebar prices by INR 1,000-1,500/MT in the starting of current month but no price correction seen post demonetization. In general practice they change prices in beginning of every month. There is strong rumor in the market that primary producer will increase price by INR 1,000 – 2,000/MT for Dec’1 delivery due to continue surge in global coking coal price.
Certainly, demand has slowdown in both primary and secondary market after the move of demonetization and industry leaders believe that the same situation will prevail in the coming months.
Will Demonetization benefit primary producer?
T.V. Narendran, Tata Steel India and SouthEast Asia managing director said in an investor call: “We are watching secondary sector very closely because a lot of that business used to happen on cash. And maybe 6070% of the long products business is actually driven by the secondary sector. So it could have a significant positive impact on the long products business for the integrated or bigger players“.
At present, large manufacturers like SAIL, JSW, RINL are offering rebar in the range of INR 34,000-34,500/MT (excise duty included, VAT/CST extra) for 12-32 mm in Mumbai; While the secondary market for the same size material is offered at INR 30,000/MT that makes primary premium to INR 4,000/MT.
Impact on Economy:
Goldman Sachs forecast a deceleration in India’s GDP growth to 6.8% for 2016-17 down from 7.6% in 2015-16 due to demonetization. According to Goldman Sachs, post dramatic currency reform on the liquidity shortage would be a significant constraint on domestic activity, which in turn would affect GDP growth.Steel industry contributes 2% of GDP growth. Therefore if GDP will fall below 7% it will also impact steel demand in country.
Low Interest Rate:
In contrary bank is planning to cut interest rate post demonetization. As per media report 0.25% interest rate will be cut any time Dec’16. If interest rate will be lower it will reduce steel cost of production. Lower interest rate is positive sign for infrastructure industry as well.
Further downside to growth owing to slowdown in real estate, the impact is seen in construction, roofing and pipes and tubes in retail segment. Indian steel makers are banking on exports to help ride the cash crunch in the retail sector, which mainly sells to home builders in smaller towns and villages in India. It hopes the demonetization drive will help them compete on price with smaller traders in the secondary steel sector, which until now functioned outside the tax net enabling them to push down prices. Sales at these small traders have come to a standstill.
Note: Prices are basic.
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