After a persistent rally, domestic steel prices are finally set to decline with a sharp fall in benchmark Chinese export prices.
Moreover, the domestic demand has slowed down on expectations of a drop in prices in the coming months.
Jatin Damania, Vice President (Fundamental Research), Kotak Securities said steel prices in the domestic market is expected to fall in the coming months as current domestic prices are at a premium to import parity. Chinese HRC prices have fallen by 20 per cent in the last month.
Margins of steel companies
Margins of Indian steel companies may come under pressure due to high coking coal prices and expected fall in steel prices, he said. Steel companies have also cut down on exports with the drop in global metal prices.
After touching a high of $939 a tonne in September, Chinese steel prices are on a decline and touched $750 last month. It fell further in November. However, in India steel prices have been increasing on the back of rise in coking coal prices and logistics costs.
Port quarantine in China
The supply chain crisis is expected to get worse with China implementing a seven-week port quarantine which will further delay the full recovery of the shipping industry.
In an attempt to keep the Covid virus at check, China continues to prohibit crew changes for foreign crew and recently imposed a seven-week mandatory quarantine for returning Chinese seafarers. Even vessels that have refreshed their crew elsewhere have to wait two weeks before they are allowed to port in China.
To comply with these norms, shipowners and managers have had to reroute ships, delaying shipments and crew changes, adding to the supply chain crisis.
Last month, domestic hot-rolled coil price was hiked by ₹3,500 a tonne to ₹69,600 on higher coking coal prices while TMT bar prices remained flat at ₹48,525 per tonne.
However, since the start of November, global steel and iron ore prices are trending lower due to weak demand. In fact, steel prices are now trading at around an eight-month low.
Sensing that Indian steel prices will also follow a similar downward trend with lag effect some of the large steel consumers have deferred fresh orders and prices are set to fall next month, said a top steel company CEO.