It is observed that Indian steel makers have increased the prices of hot-rolled coils (HRC) many folds since August 2020, by Rs 13,800 per tonne to Rs 51,050 per tonne. The growth observed in December is almost 37% year-on-year.
In the event of healthy domestic supply, even in shortage of iron ore, and steady market growth, steel prices are likely to settle high in the quarter from January-March 2021 with a constant value hike of Rs 7,000-8,500 per tonne.
According to a report titled, ‘price lift for steelmakers’ in Crisil, “Domestic steel prices defied predictions and ascended through the December quarter…Consequently, flat steel prices are seen 14-15% higher on-year this fiscal.”
After the rise in iron-ore prices, the steel price across the globe has touched an 8-year high in December on strong demand. After falling to $409 per tonne in April from $499 per tonne in January 2020, China HRC free onboard prices bounced to $647 per tonne in April and December 2020.
Crisil report states that residential prices are still 6-8% below global settled prices despite this material development. The report also adds that “Set another system, there is opportunity to increase domestic prices further given they move in sync with the world trend.”
The domestic market grew to the pre-pandemic (February) level in August itself with normalization in the enterprise development and consumption-linked sectors. The report said that a full-blown improvement was still observed only in November when sales volume rose 11% on-year.
Additionally, Crisis states that “The demand momentum should continue in January-March…contraction in steel demand this fiscal to 9-11%, compared with our previous forecast of a 17-20% de-growth.”
Iron ore is one of the essential raw materials for steel industries, and its prices doubled May-June levels to Rs 4,360 per tonne in December. However, it continues 60-65% cheaper than landed iron ore prices. On the other hand, cooking coal prices have declined, led by China's low procurement between stable supply.
Crisil report says that “large steel mills, except the public sectors should perceive a 550-650 basis points (bps) Ebitda margin increase this financial. In the second quarter, their margins expanded 740 bps, after plunging 600 bps in the first quarter."