Steel prices fall, but Chinese demand holds the key

Mar 5,2021

Secondary steel producers have revised domestic rebar prices due to reduced iron ore prices and increased production.

However, the future trend in prices will be connected very close to the Chinese demand-supply balance. With the steady recovery of the Chinese economy, China's demand is likely to remain stable in 2021.

It is observed that some large manufacturers have cut costs of hot-rolled (HR) and cold-rolled coils by up to 1,500 a tonne in the first week of March, and as a result, steel prices are heading down. Further, it is the first significant price cut in the past nine months and comes on the back of a small pause in domestic demand in the last fortnight of February 2021.

According to the report, steel prices are supposed to fall by 10% compared to January highs over the next few months. The price reduction is due to lower input costs, iron ore, and heightened competition from cheaper imports, with India cutting customs duty on steel.

Domestic prices of HR coil surged 54% from a year ago in the December quarter amid a robust recovery in domestic demand and mirroring higher global steel prices. HR coil is useful in transport, construction, shipbuilding, and capital goods.

Additionally, HR coil rates decreased by 3% in mid-February 2021 to 53,750 per tonne but were still 40% higher from a year ago.

Dropped prices in flat steel are the result of increasing inventories with traders. Most of the traders are reluctant to procure steel at the high price levels since they have sufficient stocks, an inadequate settlement in demand from auto and pipe makers, and a variation between mill price and trade price.

In mid-February, domestic rebar prices were at 48,800 a tonne, 9% lower month-on-month but 38% higher compared to the same period last year. Further, budget decisions reducing the import tax on steel scrap will encourage secondary steel producers to increase production. Also, it will support in improvement of rebar supply and add pressure on steel prices. 

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