By K Raveendran
Further hikes in steel prices are in the offing as upside risks in the global markets have strengthened in recent weeks. Faced with a decline in global production, manufacturers across the world are raising their prices.
Indian steel mills have already effected a 3-5 percent increase in prices across the board, with prices ranging between Rs 2,000 and Rs 3,500 per tonne after prices remained depressed for about eight months since May last year. Prices began their slide after a global economic slowdown appeared a certainty in the wake of the Russian war against Ukraine and its aftermath, coupled with the imposition of an export duty as part of the Centre’s anti-inflationary measures.
But the trend changed towards the beginning of the new year, with global markets witnessing a firming up of $30-50 per tonne. The reversal of fortune had a salutary effect on Indian domestic mills as well. The mills were also affected by traders preferring cheaper imports in view of the international market situation.
Now it is a complete reversal of the situation and the rising trend in the international steel market is threatening to gather further momentum as mills in major producer countries, including China and the US and India. According to data released by World Steel Association, India was the only country among top 10 steel producing nations which registered growth in steel production last year.
According to Rystad Energy, which is closely monitoring the steel market, Chinese hot-rolled coil (HRC) export prices rose by 1.8 percent on a weekly basis ending February 3 while US domestic HRC prices rose 4 percent, a tenth consecutive weekly rise after prices found their floor at $711 per metric ton in late November. European prices have been impacted by rising energy prices, which recovered strongly in December, as well as seasonal rallies in raw materials, which has ensured that margins remain at low levels in spite of a near 5 percent rise in prices.
But the bigger story about the Chinese steel industry is that it has not recovered to the extent it was expected. According to Rystad, instead of rising strongly on a year-on-year basis as it did from August through November, output fell almost 10 percent in the month. This meant that steel production in China fell for a second consecutive year, contrary to the expectations of a modest recovery from the government-imposed cuts in 2021. Output in the rest of the world also fell after an initial post-lockdown surge. But everything indicates a big recovery this year.
According to analysts, whilst it remains highly unlikely that prices in the US or Europe can fully recover this year, further price rises can be expected in and out of China where the profit margins at the average producer fell last year to less than 1 percent. Long products are also moving higher following recent scrap price rises which are also likely to gather speed as steel production revives.
Japanese exporters continue to increase OCTG prices on strong buying interest, despite falling raw material prices. Export demand for OCTG is said to be increasing globally while supply remains very tight. But analysts feel that the lower raw material prices in Japan combined with the weakness of the Japanese Yen against the US dollar may limit the price increase in the coming months. Taiwanese exporters have been aggressively cutting prices to take bigger share of the market, with South Korea also pushing more products.
Global financial services firm JPMorgan put out a highly favourable report on the Indian steel industry, saying it expects prices to rise further in the coming days on the basis of a projected pick-up in demand in the Lunar New Year. The firm predicted further steel price hikes of Rs 3,000 per tonne in the next 2-3 months.
Benchmark HRC prices in India are currently at Rs 56,000-57,000 per tonne, as against Rs 54,000 in December. On the other hand, CRC prices stood at Rs 61,400-62,000 per tonne, up from the Rs 59, 500 in December.
Rating agencies Crisil and Fitch have also shown thumbs up to the Indian steel industry, saying it will see a return to healthy traction in view of supply chain improvements as well as boost to demand in view of the dynamic growth in the economy. (IPA Service)