Good times for steel makers to continue

Sumit Maitra & Tamajit Pain

Has the steel upcycle hit a plateau?

Domestic demand was subdued during the first quarter of the current financial year with buoyant export markets providing some support to most of the primary steel makers.

Domestic finished steel consumption was lower compared to the previous quarter due to the second wave of the pandemic though growth was strong compared to the corresponding quarter of 2020 when the economy was on virtual standstill.

During the quarter, long steel prices were relatively subdued compared to flat steel prices, which were also boosted by a strong export markets.

Officials of Jindal Steel and Power, whose exports accounted for 34 percent in the first quarter, said the share of exports would have been higher in the absence of logistical challenges posed by unfavorable weather leading to congestion at ports.

Crude steel production, consumption rise in July

India’s crude steel production was up 3.9 percent month-on-month (m-o-m) in July at 9.725 million tons (mt), according to initial provisional data from the steel ministry.

Hot metal production was up 5.8 percent in July at 6.588 mt, while finished steel production was up 2.8 percent m-o-m at 8.996 mt, the data showed.

Finished steel consumption moved up marginally by 0.65 percent to 8.245 mt in July while imports rose 1.9 percent m-o-m to 4,10,000 tons during July. Exports during the period rose 10.5 percent m-o-m to 1.512 mt in July.

Strong demand to support prices

Some of the fundamental factors supporting the prices so far still exist including the demand pull indicating that there could be some stream left in steel prices with likely revival in demand post monsoon.

In the first half of 2021, global steel makers witnessed high margins, improved demand and low inventories.

Things would be better in coming months, says global steel major ArcelorMittal.

“Looking forward, we see the demand outlook further improving into the second half and have therefore upgraded our steel consumption forecasts for the year,” Aditya Mittal, ArcelorMittal Chief Executive Officer, told investors after the announcement of the 2021 second quarter financial results.

Towards the end of the quarter, Arcelor Mittal’s India operations, AM/NS India saw encouraging signs of domestic demand revival, particularly from the automotive, white goods and infrastructure sectors.

As a result, crude steel production in Q2 remained stable at 1.8 mtpa, close to the levels achieved in Q1, the group explained.

The second quarter results not yet reflecting the full improvement in steel spreads due to order book and lags, ArcelorMittal told analysts that it expect positive momentum into the third quarter due to lags with seasonality expected to be less pronounced then normal.

ArcelorMittal has upgraded its global apparent steel consumption forecast for 2021 against 2020 to a range of 7.5-8.5 percent from previous growth estimate of 4.5-5.5 percent.

Jindal Steel and Power Ltd sees healthy steel demand driven by government stimulus with strong demand even causing shortage of finished steel driving prices higher while Chinese government’s policy to cap 2021 steel production below 2020 should keep a lid on supply.

Export rebates have been eliminated and additional tariffs on Chinese exports are likely to be imposed, the company told investors.

“Looking forward, we see the demand outlook further improving into the second half and have therefore upgraded our steel consumption forecasts for the year.” Aditya Mittal, CEO, ArcelorMittal

“Outlook for stainless steel demand remains robust on the back of faster vaccination drive, improvement in availability of liquidity, and overall economic recovery spurred by improved business sentiments and infrastructure stimulus by government,” Jindal Stainless Ltd said.

“Fortunately for the steel sector, the pandemic has not derailed demand much. Last fiscal, after a washout in the first quarter, there was a ‘V’ shaped recovery that limited the decline in domestic demand to 6 percent for the year. This fiscal may see a robust 10-12 percent demand growth, led by the auto and infrastructure segments and higher exports. The medium-term prospects remain strong, too, with estimated compound annual growth rate of 6-7 percent for fiscals 202225,” says Naveen Vaidyanathan, Associate Director, Crisil Ratings.

Global crude steel production