Domestic steel prices ruling at discount, upside seen: analysts

Sumit Maitra and Tamajit Pain

There is enough steam left in the steel price rally and domestic prices are expected to rise further in coming days.

Domestic producers in the first week of April increased Hot Rolled Coil prices by `3,000-4,000/tons to `58,000/t ($790/t).

However, prices are still at a huge discount of 12 percent to landed cost of imports which is $896/tons and at a discount of 4 percent to export parity price too (HRC, East Coast FoB price is $827/t).

Domestic steel prices are at 11-16 percent discount to imports from China and also several other countries, which are India’s free-trade partners.

According to Jayanta Roy, Senior Vice-President & Group Head, corporate sector Ratings, ICRA, “Given the elevated Chinese export HRC price level of $768 per ton and a recent spurt in ocean freight rates, landed price of imported steel from China is 10 percent costlier compared to domestic HRC prices. As a result, even if the domestic steel consumption moderates in the coming months, we do not expect domestic steel prices to fall drastically from the current levels.”

Centrum Research factors in a fall of `6,000/ton in steel prices in FY22 from Q4FY21 average implying `9,000-10,000/ ton fall from current prices.

“Domestic steel prices can sustain till May even if global steel prices fall by 4-5 percent,” it said.

One of the factors behind recent hike in steel prices was that Indian Hot Rolled Coil prices were trading at a discount of `9,000/ ton to imports from Korea, said an analyst.

Import prices from Vietnam were up $30/ton week-on-week in the early days of April.

Also, China’s decision to cut export rebates is also a positive for steel prices in India, said Credit Suisse in a report.

Robust domestic demand and higher regional steel prices have led to a 20 percent rise in domestic HRC prices over third quarter to a record high.

Since the opening up of the economy in June 2020, pent-up demand from enduser industries - in particular automotive, white goods manufacturing, construction and infrastructure - have boosted steel consumption, containing the steel consumption decline to only about 11 percent during fiscal 2021.

“A benign industry environment, supportive government policies in the form of large infrastructure investments and markedly better prospects in the automotive industry have supported steel prices,” Moody’s Investor Services said while upgrading rating for JSW Steel.

“Domestic flat steel prices have remained elevated due to the higher realisations in the export market which has caused steel mills to focus on exports, despite domestic demand remaining strong. Furthermore, the high prices in the international market make imports unviable,” India Ratings said.

Coking coal prices, however, are expected to go up ($150/ton CNF India) in the current year.

Exports

Though India has been a net steel exporter since August 2019, but amount is minimal except during April-January when domestic demand was hampered due to lockdown (net exports was 5.4 mt during April-January while it was 1.23 mt in FY20).

Spreads

Both HRC and rebar domestic spreads have improved in mid-March 2021 due to the increase in steel price and lower coking coal prices.