Why Indian Steel Prices May Not Fall from Current Levels?

Indian steel prices (both longs and flats) observed a gradual correction in last few months on several factors like liquidity issues, subdued auto and real estate demand. According to SteelMint’s assessment rebar prices have corrected by INR 2,000/MT (USD 28/MT) and HRC prices by INR 2,700/MT (USD 38/MT) in last 3 months.

Although further downside from these levels look limited on following factors

1. Large players cut production:Large steel players have curtailed production in last quarter on demand issues. For instance, RINL has shut down one blast furnace (production loss of 100,000 MT per month) since Sep’19, where as JSW has reported a Q-o-Q drop of 9% in Q2 FY 20 due to prolonged maintenance and weak demand. According to data released by joint plant committee, consolidated production numbers by large players have dropped by approximately 1% in Q2 against Q1 FY 20.

2. Long export bookings: It is learned that large mills have export orders for November delivery. SteelMint learned that JSPL has booked around 125,000 MT billets and around 100,000 MT Pig Iron for Nov shipments. On the other hand RINL has recently booked two parcels of (20,000 MT each) billets for Nov delivery. Long steel prices look more stable and have limited downside.

3. HRC export bookings stall on falling prices in SE Asia: It is estimated that HRC exports from India may see a drop in the month of November on falling imported HRC prices in Vietnam (largest buyer of Indian HRC). Indian mills reported bulk HRC shipments of 615,000 MT in Sep’19 on active bookings made in Aug-Sep’19. Flat steel prices may remain under some pressure if export bookings are not made or auto demand does not improve.

4. Higher cost of production by small and midsized mills:IF (Induction Furnace) based mills are operating at negative EBIDTA on high cost of production (scrap and sponge iron). It is unlikely for them to absorb any further price cut. IF route contributes about 30% on India’s total steel production and around 60-70% of longs steel market

Current Prices

However considering limited imported HRC bookings amid competitive domestic prices & ongoing safeguard investigations, may keep domestic prices supported however on the other hand dull demand might push some price correction.