Increasing risk of ‘second wave’ of Covid-19 infections in Europe causing uncertainty in near term
Steel long futures (Oct8 expiry) were trading at Rs32,410/mt, Nov6 expiry at Rs32,850/mt and Dec7 expiry at Rs33,280/mt on ICEX. On the other hand at MCX, Lead futures (Oct30 expiry) were trading t Rs143.90/kg as against life-time high of Rs158.75 and low of Rs141.60. Lead prices consistently rose from Rs137.05 on June 1, 2020, to Rs158.75 on August 24 and started easing off to the present level. Analysts attribute the reasons to the correction of over six per cent in September to oversupply in the markets and the overall demand remains below the pre-pandemic level.
As economic activity is gradually picking up in the Unlock 5.0, steel companies started increased the price of the metal for the fourth month in a row in October on the back of demand revival and firm price trends in the overseas market. As a result, the benchmark hot rolled coils (HRC) prices rose Rs 1,000-2,000 per tonne for October deliveries to Rs 43,000-43,500 per tonne, whereas cold rolled coil (CRC) prices are hovering at Rs 52,000 per tonne.
Ravinder Kumar, senior research analyst (commodities) at SMC Global Securities Ltd, said: “India turned to a net exporter of steel during April-August with net exports of 4.0mt vs net imports of 0.9mt in the same period last year. The recovery in both automobile and white goods sectors has boosted the demand in India and thus the steel prices to pre-pandemic level. Though the demand from the construction side remains low and it is expected that it will recover post-monsoon. The growing risk of a ‘second wave’ of Covid-19 infections in Europe, visibility for demand recovery remains uncertain in the near term.” The hike underscores the current strength of domestic demand for flat products. The automobiles and white goods sectors are creating demand for steel products otherwise in a tight market supply.
The demand in flat rolled steel is also driven by replenishing of inventories by end-users amidst tight supply of HRC, even as inventories remain low in the system. Further, export commitments of domestic steel mills for October 2020 delivery are further likely to keep the supply situation tight in India, says Motilal Oswal in its latest report. Coming back to Lead prices, the recent price performance implied that worst is not yet fully over in industrial metals from the corona led crisis, according to SMC Global Securities. Although prices recovered as traders try to continue the momentum. Reopening of factories and a revival in demand in the world’s top metal consumer, China, also largely helped on the recovery trail. After marking a negative growth in Chinese industrial production in the first quarter, sentiments improved and official manufacturing data continued to expand for the sixth straight month in the August. Higher demand for acid batteries in China served as catalyst for lead price gains. On the other hand, it is expected that policy easing and fiscal stimulus measures taken by global central banks boosted industrial activities and thus the demand of metals. It has potential to see more upside if there is improvement in EV demand and other physical demand, then futures prices has strength to touch the level of 155-160. The next phase of recovery is largely confined in stable growth of industrial activities from top consuming economies like China, US and Eurozone.
Elaborating technicals on Lead prices, Kumar said: “In the technical front Lead future at the MCX platform has settled lower at 145.80 on the previous week. Last month prices has been broken the resistance level of 147 and made a high of 158.75 after a long time consolidation. But prices were not able to sustain again at higher level and slipped last week towards 144.25 levels. At present prices are trading below the daily 14 EMA levels of 150.The Momentum Oscillator Stochastic (14,3,3) is now witnessing negative divergence and also providing bearish trend for short to medium term basis. The 50 days EMA sustained on the lower side which is indicate selling in short term basis. So overall the commodity is expected to move lower from its resistance level of 151. Now the crucial resistance is seen at 151, sustainable trade above the resistance level of 151 will see the good upside move towards 156/160 in this month and if the prices has sustain below the support level of 144 levels then will see again the downside move towards 139/135 respectively.”
Crude steel output in Aug drops 4%
Crude steel production in India eased 4.4 per cent in August on a year-on-year (YoY) basis to 8.48 million tonne (mt). During August 2019, India produced 8.87 million tonne of crude steel. However, the global crude steel production marked a marginal rise and China recorded 8.4 per cent increase at 94.8 million tonne, according to data from the World Steel Association (WSA), which in a statement said total steel production for the 64 countries reporting to it was 156.2 million tonne in August 2020, a 0.6 per cent increase compared to August 2019. It further noted that due to the ongoing difficulties presented by the Covid-19 pandemic, many of the estimates may be revised with next month's production update. WSA further added that “China produced 94.8 Mt of crude steel in August 2020, an increase of 8.4 per cent compared to August 2019. India produced 8.5 Mt of crude steel in August 2020, down 4.4 per cent on August 2019.”
According to the latest report from WSA, Japan produced 6.4 million tonne of crude steel in August 2020, down 20.6 per cent compared to August 2019. South Korea's steel production was 5.8 million tonne in August, down by 1.8 per cent on a year-on-year basis. Germany produced 2.8 million tonne of crude steel in August 2020, down 13.4 per cent. The US produced 5.6 million tonne of crude steel in August 2020, a decrease of 24.4 per cent compared to August 2019.
As against expectations of a price drop in dragon country, the steel prices rise in October and flat steel prices have dropped by four per cent in September 2020. The steel price of long steel products further rose as recovery in real estate sector picks up. Steel long products are used in real estate projects. The price rise is moderate when compared to the HRC prices and long products are still priced about Rs 1,500 per tonne lower than flat products. With the price rise in October, HRC prices are now higher than pre covid price line of Rs 42,000 per tonne.
On a cumulative basis, steel mills have hiked HRC steel prices by Rs 7,000-7,500/tonne since July, 2020. The improved demand outlook is driven by a strong recovery in automotive, consumer durables and other white goods. While domestic conditions have pushed up steel prices in the country, pressure points remain by way of falling steel prices in the biggest producing and consuming nation China. There steel prices have declined by $ 25/tonne in both domestic and export markets during September 2020.
Domestic HRC prices, which stood at parity to landed cost of imports from South Korea ($ 555/tonne CNF India) are now trading at a five per cent premium post this hike (to $585/tonne). China export prices have declined to $503/tonne ($ 528/tonne CNF India). The price trend in China, post the national holidays (which will be over in a week), would determine the direction for regional and domestic steel prices. If prices in China do not improve post the holidays, the Indian prices could be at risk as a 10 per cent premium to Chinese prices would be unsustainable for long. This is because imports would rise substantially, the brokerage report said.
Analysts expect further upward journey for long steel products as an expectation of recovery in long steel prices with demand recovering post monsoon. The recovery in long steel product prices has remained subdued compared to flat rolled steel as rebar prices are still at Rs 1,500/tonne lower year-to-date in the current financial year of FY21 (while HRC is higher by Rs 5,000/tonne).
The writer is a business journalist with 27 years of experience