After lying low for the last two months, domestic steel prices are being quoted at a premium over imports as shipments from China are being delayed due to a sharp fall in their production.

Domestic hot-rolled coil (HRC) prices are sold at a premium at $645 (₹51,600) a tonne while that of China hovers at about $614 (₹49,120) a tonne. China’s crude steel production was down 3 per cent to 90.7 million tonnes last month. It dipped 6 per cent to 526 million tonnes in the first six months of this year.

Besides the option of ready delivery, the sharp depreciation in rupee against the dollar has made imports expensive and encouraged domestic steel companies to charge a premium over imports. Traditionally, domestic steel prices are always at a discount or par with imports depending on the demand.

However, the sustainability of the premium charged by domestic steel producers is being tested by cheap imports from Russia, although in smaller quantities.

‘Russia testing waters’

Srinivasan Manoharan, President, Shri Bajrang Power and Ispat, said China has completely quit the export market due to their internal issue and Russia is just testing the Indian markets by offering good discounts before both the countries establish a viable payment options for settling deals. “We are sure that the Indian government will not allow Russian steel companies to flood the Indian market. Moreover, on the TMT bars, there is strong consumer affinity to domestic brands due to its superior quality and competitive pricing,” he added.

Some of the white goods manufacturers and institutional buyers may look to source from Russia and settle it in any other currency than dollar particularly after its appreciation against rupee, said Manoharan.

Hit by the US economic sanctions and with the ongoing face-off with European countries, Russia is tapping the Indian market by offering steep discount and offering flexible payment option in different currencies.

Pressure on prices

Steel prices have come under pressure ever since the Centre announced an export duty of 15 per cent on select pig iron, flat-rolled products of iron or non-alloyed steel, bars and rods and various flat-rolled products of stainless steel and another 45 per cent on iron ore pellet, in May.

Steel shipments from Russia, amid a seasonally very weak domestic demand trend, will take a heavy toll on steel companies if the momentum gathers pace.

Domestic steel prices last month had fallen 5 per cent to ₹59,800 a tonne while that of TMT bars produced by primary producers slipped 4 per cent to ₹59,000 a tonne. Additionally, the same products sold by secondary producers saw a 6 per cent jump in prices to ₹55,700 a tonne, largely due to an increase in their production cost.

Prices of iron ore sourced from the open market largely by secondary producers in Odisha increased 6 per cent to ₹3,500 a tonne.

Vishal Chandak, Research Analyst, Motilal Oswal, said domestic HRC prices continue to trend down and massive premium on domestic steel prices may not sustain if the local demand remains muted. Domestic steel prices are expected to fall further while the sharp 37 per cent fall in coking coal prices will help protect the EBITDA margin of steel producers going ahead, he added.

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