Power Tariff, Liquidity Crunch and Inventories; Things Hurting Steel Demand in Nepal

Kathmandu, Nepal

One of the promising countries in terms of rising steel consumption and production has shown some signs of slowdown in last couple of months.

SteelMint after speaking to steel makers and traders realized following reasons for falling demand –

Liquidity Issue: Nepal’s banks are facing difficulty in extending more loans to the enterprises seeking credits as the Nepali banking system is facing liquidity crunch for last few months. Banks have increased the FD rate to 11.5% from 10% and the lending rate to 14-15% against 12-13% since January 2019.

Increased Power Tariff: Steelmakers mention SteelMint that government has announced a steep hike in power tariffs by upto 65%, on retrospective basis from 2015. Government has slapped steel mills with heavy dues, leading mills to cut their production. Sources mention that mills have challenged this decision in Supreme Court they feel this decision will not stand and situation will be clear next week.

Enough Inventories in the System: Steel traders highlight that market has enough stock at the moment as decent bookings were made before Diwali festival (in Nov) on anticipation that demand will pick up. But liquidity issues and lack of government projects have brought down the sales and traders and mills are sitting on inventories.

Supply-Demand Mismatch: Industry participants feel that many rolling mills have started operations in last few months and on the contrary demand continues to remain subdued creating a mis-match.

Nepal is one of the biggest buyers of Indian billets. Country imports about 10,00,000-12,00,000 MT every year from India, which is about 50% of total billet exports from India. Any slowdown in Nepal will hurt Indian billet makers.

In a recent tender floated by state owned mill for 8,127 MT heard to have received highest bid at USD 430-435/MT on ex-mill basis which is equivalent to USD 465-470/MT CNF Nepal, although tender was not concluded at the time of reporting.

Induction grade billet offers from eastern region (Durgapur) stands at USD 445-450/MT on ex-mill basis, which is equivalent to USD 475-480/MT CNF Nepal.

SteelMint also learned that big mills are selectively buying prime grade billets from India selling their own produced billets to local re-rollers.