Weak demand, oversupply and price decline to hit Indian steel industry: Ind-Ra

Jul 3,2020

Indian steel industry’s gross spreads per tonne for both hot-rolled coil (HRC) and rebar are likely to fall in the second quarter of FY21 with more declines in steel prices due to oversupply, India Ratings and Research said in a sector study on Thursday.

"As domestic production will slowly increase with the easing of the lock-down prohibitions, along with no significant increase in steel demand, domestic gross spreads per tonne for HRC and rebar are likely to fall for steel companies," said Ind-Ra.

Major steel firms were working at lower utilization rates during the lockdown, and due to weak domestic demand, companies boosted steel exports, primarily to China, but at lower margins.

“Timely policy support from the government would help bolster the demand for the domestic steel sector,” the report said.

All HRC and rebar prices fell by 3 per cent and 4 per cent month-on-month, respectively, in mid-June 2020, and rebar spreads corrected more than HRC spreads owing to a greater fall in demand than the available supply.

"Rebar spreads are likely to be less affected over the near term to the end of fiscal year 21 compared to HRC due to the likely improvement in demand pick-up, leading to a price increase backed by the expected implementation of government infrastructure spending," the report said.

Steel prices rose slightly in May 2020, although higher inventories remained open to steel players. This was attributed to logistics constraints and manpower availability issues, resulting in reduced supply to end-use industries that slowly reopened post-lock relaxation.

Australian coking coal costs were 17 per cent lower in mid-June 2020 relative to December 2019. The fall in prices can be directly attributed to a decline in global demand as well as Chinese import restrictions and port clearance policies.

"A gradual increase in Chinese furnace production and demand, given the level of inventories that are declining rapidly, may increase Australian demand for coking coal in China, subject to import restrictions, thereby encouraging the price of coking coal," the report said.

As per Ind-Ra, the domestic prices of iron ore in mid-June 2020 were 31 per cent lower than the mid-March 2020 prices prior to the lockdown in India. Domestic prices have been dramatically rectified.

"Most players stocked on the iron ore inventory for four to six months by the end of March 2020 due to the expected risk of limited availability of iron ore due to uncertainty over the timely completion of the iron ore auction by the end of March 2020."

Small and medium-sized steel companies have become more impacted and are expected to experience tight liquidity owing to delays in receipt of receivables and payment of fixed labour and electricity charges.

The majority of steel companies have made a petition for waiving fixed demand charges and surcharges on electricity bills until the condition becomes optimal for the smooth operation of steel plants.

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