Domestic HRC and CRC prices continue to remain discounted by around 15-20% as compared to international rates despite a sharp drop in Chinese export offers. Thus, to reduce this gap, Indian mills are planning to further lift local HRC and CRC prices by around INR 2,000-3,000/tonne ($27-41/t). However, an official announcement is still awaited. In May’21 alone, a few major steel mills lifted prices twice.
Factors driving domestic HRC and CRC prices
1.The huge gap between domestic and international prices: There is a gap of 15-20% between domestic and overseas prices despite a sharp fall in Chinese export offers on the back of volatile futures. Currently, China is offering HRC at $1,030-1,040/t CFR and the Japanese mills, at $1,100/t CFR. On the other hand, trade prices of HRC in Mumbai region are at around INR 65,000-66,000/t. Prices do not include GST extra @18%.
2.Short supply due to increased exports: Due to the lockdown announced in many states, domestic demand remains subdued and the volumes allocated for domestic consumption have been diverted to exports. Meanwhile, mills have also started focusing on HRC exports due to higher price realisations. Despite the limited availability of vessels, export volumes from India continued to remain high. Indian mills are booked with export orders for June shipments. This resulted in limited allocations in the traders’ market.
3.Easing lockdowns may improve demand: Major steelmakers are anticipating an improvement in demand in the traders’ market as well as in end-using industries as the lockdown has started easing in various states.
“Industry circles feel prices won’t decline in India,” market sources informed SteelMint.
On other hand, the domestic trade market is dull and inactive since buyers are reluctant to purchase the material at higher prices. Also, it seems the market will not be able to absorb further price hikes.SteelMint’s benchmark prices for 2.5mm hot-rolled coils (HRC) stand moderate at INR 65,000-66,000/t (exy-Mumbai) against last week. The prices mentioned do not include GST @18%.
*Prices mentioned above are as per SteelMint HRC price methodology
Key reasons why domestic prices will remain moderate:
1.The Indian HRC export index fell amid fall in Chinese futures: SteelMint’s Indian HRC (SAE 1006) export index stands at $1,044/tonne (t) FoB east-coast basis, down by $13/t against $1,057/t FoB week-on-week (w-o-w) due to a sharp drop in Chinese futures. Thus, a fall in export offers is likely to hurt prices in the domestic market.
2.Demand from end-user industry subdued:
- Many automobile showrooms are closed due to announced lockdowns. Meanwhile, oil prices are too high. Thus, sentiments are negative for the auto industry as sales witness a major dip. For instance, Maruti Suzuki’s 2,500 outlets, comprising 81% of its total showrooms in the country, remained closed in the month of May’21.
- Consumer durables sales dropped by about 30% during Apr-May’21. Summer sales look a complete washout due to the second wave of the pandemic. In India, many states have announced the decision to unlock. However, some states are still struggling with the daily rise in cases. If at all the restrictions continue in June, the drop in annual sales could be as much as 20%, SteelMint understands from market reports.
Outlook
Major mills may further increase HRC and CRC prices to maintain the momentum in the market. However, traders are reluctant to purchase material at higher costs. Once trade activities gradually pick up in states where the restrictions are being eased, we will have a better understanding of whether the market is able to absorb the price hike or not.
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