STEELLONG futures (Jan 7 expiry) were trading at Rs38,700/mt on ICEX platform as against life-time high of Rs38,900 and low of Rs36,900. STEELLONG futures (Mar 5 expiry) traded at Rs38,950/mt and it’s above the lift-time high so far. This is upward movement of steel prices indicating revival of economy as it's a barometer of progress of construction and infrastructure sectors. The ongoing Unlock 6.0 phase is showing a sign of gradual recovery of economic activity. Already, steel companies in October increased the price of the metal for the fourth month in a row on the back of demand revival and firm price trends in the overseas market.
Benchmark hot rolled coils (HRC) prices rose by Rs 1,000-2,000 per tonne for October deliveries to Rs 43,000-43,500 per tonne whereas (cold rolled coil) CRC prices stand at Rs 52,000 per tonne. The price rise in October is contrary to expectations of a decline in prices in China, where flat steel prices have dropped by four per cent in September 2020.
The steel prices also for long steel products used in real estate projects are also moving upwards, but the price rise there is moderate 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. HRC steel (hot-rolled coil) is a predominant finished steel form used in industrial fabrication, automotive, consumer durbals and construction sectors. The improved demand outlook is driven by a strong recovery in automotive, consumer durables and other white goods.
According to a study by Motilal Oswal Institutional Equities, the price rise underscores the current strength of domestic demand for flat products (led by recovery in auto and white goods) and tight market supply. And the demand for flat rolled steel was 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 may keep the supply situation tight in India.
While domestic conditions are favouring steel prices in India, pressure points remain by way of falling steel prices in the biggest producing and consuming nation China. There steel prices fell 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.
But the good run is expected to continue for long steel products. There is 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 YTD FY21 (while HRC is higher by Rs 5,000/tonne).
Crude steel output eases 4% in Aug
Production of crude steel in India in August fell 4.4 per cent on a year-on-year (y-o-y) basis to 8.48 million tonne (MT) as against 8.87 million tonne during the same period in 2019, according to data from the World Steel Association (WSA). Globally, however, crude steel production marked a marginal rise and China recorded 8.4 per cent increase at 94.8 million tonne. World Steel Association in a latest statement said that 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.
“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,” said WSA in its statement.
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.