Taking cues from China, Indian steel prices set to rise further

Suresh P Iyengar Mumbai | Updated on December 27, 2020

User industries raise serious concern as their cost calculations go haywire

Steel prices are set to go up further, despite the deep concern raised by the user industry and Nitin Gadkari, Minister for micro, small and medium enterprises and highways, who wrote a letter to Prime Minister Narendra Modi on the impact of rising steel prices on infrastructure projects.

Despite subsequent hikes in the last few months, steel prices in India are at 5 per cent to the landed cost of imports.

Incidentally, hot rolled coil prices have increased 46 per cent to Rs 52,000 per tonne in November compared to Rs 37,400 per tonne in July this year. Rebar TMT, which are used in the housing and construction sectors, have touched Rs 50,000 a tonne.

Reason for the hike

The hike in Indian steel prices were due to the benchmark export prices in China inching closer to the 10 year high of $710 a tonne recently.

The FOB (free on board) steel prices in China had touched a high $775 a tonne in 2011 and was even higher at $1,014 a tonne in 2008.

China imports 40 per cent of its overall coal requirement from Australia. The cost of steel production in China is expected to jump sharply since it has to import coal at a higher cost from other countries.

Australia accounts for 65 per cent of the world’s coal supply. The vibes between China and Australia soured after the later blamed China for spreading deadly Corona virus across the world.

With China cutting its procurement from Australia, coking coal prices are expected to fall sharply. The drop in coking coal prices and firming steel prices are expected to benefit Indian steel companies.

Indian Steel producers concerns

The cost of Indian steel producers are expected to fall by about Rs 1,800 a tonne year-on-year in the second half of the current fiscal year, while the cost of coking coal is likely to drop to nearly Rs 7,300 a tonne, compared to Rs 9,100 a tonne in the same period last year.

Seaborne hard coking coal prices in the current fiscal is expected to average at $113 a tonne (FoB Australia) in this fiscal against $164 a tonne logged last fiscal.

Coking coal import prices fell to a 52-month low last month. It has dropped 27 per cent since early-October due to the the tussle between Australia and China and in anticipation of an oversupply in the global market.

Jayanta Roy, Senior Vice-President, ICRA said the revival in steel demand has been surprising and the industry’s ability to claw back to the pre-Covid levels of demand within 6 months of a global pandemic outbreak has been remarkable.

"We are revising our next fiscal steel demand forecast to a contraction of around 12 per cent, significantly better than our initial forecast of a 23 per cent contraction made in April," he said.

Published on December 27, 2020

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