Why Indian Steel Prices are Surging?

Domestic steel prices in India have been witnessing price hike since Feb’17. Price uptrend has been seen all along the steel chain right from raw material, semi-finished to finished steel products. The primary reason driving the Indian steel prices is incremental Chinese steel prices.

It is to be noted with capacity cuts over illegal mining of ‘ditiaogang’ (unqualified steel) in Jiangsu province’s Xinyi city; Chinese steel exports have come down. China’s steel exports dropped to 3.5 years’ low and stood at 5.75 MnT in Feb’17 against 7.42 MnT in Jan’17. China has about 113 MnT of ditiaogang capacity (referring to the capacity of medium frequency induction furnace), which mainly produces rebar, wire rod, coiled rebar and other construction-used steel products, even angle steel and channel steel etc. The reduced ditiaogang capacity of the mills has resulted in a decrease in steel supply in marketplaces, thereby decremented the Chinese steel exports. Lesser steel exports from China paved the way for Indian steel exporters to cater to these markets.

It was after the Chinese media raised the issue of environmental damage due to low grade steel production the local and central government has imposed a production cut on concerned mills.

The factors that have led to recent price hike in Indian steel market are-

1. Sharp hike in Chinese steel & iron ore prices – Strong sentiments in Chinese market has lent a support to India’s domestic steel market. Domestic as well as export offers of finished steel in China which sets a tone for the entire global market has remained strong. For instance Chinese Rebar export offers are up by USD 7/MT M-o-M in Mar’17. In Mar’17, Chinese HRC export offers have gained USD 5-10/MT M-o-M.

In China, the higher grade iron ore has been much in demand recently due to the increased development and construction activity that regained after an interval of a big holiday season. This has pulled Fe 62% iron ore fines prices in China to 30-month high of USD 95/MT, CFR China in Feb’17.

2. India’s increasing steel exports – In line with India’s increasing steel production, India’s finished steel exports have increased significantly in this fiscal and stood at 5.39 MnT during Apr-Jan’17 against 2.91 MnT in the same period last fiscal, up 85% Y-o-Y. In Jan’17, India exported 0.83 MnT finished steel against 0.69 MnT in Dec’16. High global prices and lesser steel exports from China attracted Indian steel exporters.

On the other hand, finished steel imports to India fell to 0.44 MnT in Jan’17 compared to 0.48 MnT in Dec’16.

3. Falling Indian Sponge Iron Production – In Feb’17, sponge production in India witnessed a reduction as the manufacturers preferred domestic coal over imported South African coal over higher prices. India’s coal import from South Africa declined 36% M-o-M in Feb’17 to 1.26 MnT. South African RB2 (5500 NAR) prices kept hovering in the range of USD 70-71/MT, FoB. It is to be noted that sponge output is higher by when using imported coal. Lesser iron ore sourcing by sponge manufactureres and more usage of domestic coal lessened India’s sponge iron output in Feb’17.

Semi finished steel prices have increased up to INR 2,000/MT M-o-M so far in Mar’17. Sponge iron prices in India have also recently hit 2 year high.

4. Declining Indian scrap imports – Sharp rise in imported scrap offers has lessened ferrous scrap imports to India. Indian scrap imports fell sharply by 32% from 0.47 MnT in Dec’16 to 0.32 MnT in Jan’17.

Imported scrap offers (HMS 80:20 from Europe) to India have moved up by USD 50/MT M-o-M in and increased to USD 310/MT, CNF India in Mar’17. In line with this, domestic scrap offers have also witnessed augmentation and increased up to INR 1,100/MT M-o-M in Jan’17 and up to INR 1,000/MT M-o-M in Feb’17.

Thus although Indian steel prices have been moving up on the grounds of global market but there are resisting factors that may prevent further upward movement like country’s domestic demand etc.

Steel Price Scenario

Prices quoted are on per tonne basis
Source: SteelMint Research