India’s domestic steel consumption grew ~9% YoY to 9.97mt in Jan’21. It is the highest ever monthly consumption. Steel demand has been steadily increasing since June after a decline in the first half of CY2020.
This demand growth has been supported by economic recovery with major demand emerging from sectors like infrastructure, Auto, White Goods, and Consumer Durables.
However, demand in the Construction segment was soft during January.
India’s steel imports rose 9% YoY to 520kt, whereas exports declined 16% YoY to 580kt. Net steel exports stood at 60kt which is the lowest in 18 months. Increasing imports is yet another sign of strong demand. Historically, declining exports and rising imports indicate a strong rebound in domestic demand. At the peak of the domestic demand cycle, India has often been the net steel import in the past.
Domestic steel inventory with mills is also down 18% YoY to 10.6mt. It is expected to reduce further in February. With steel inventory levels falling for domestic players, the imports are tipped to increase further in the coming months.
Iron ore prices easing :
In a major relief for the domestic steel manufacturers, easing iron-ore prices are likely to reduce their production cost. Iron ore is one of the main raw materials to make steel.
National Mineral Development Corporation (NMDC) has cut its iron ore prices by Rs 600/tn (10-12%). This is the first cut in iron ore prices seen in the last nine months. The iron ore prices have come down due to the excess production in Odisha. Essel mining, one of the largest merchant miners in Odisha, has cut iron ore prices by Rs 500-600/tn.
Steel prices down from the top :
Under the impact of reducing raw material prices, hot rolled coil prices have come down by 5% during the month. Domestic HRC prices are now trading at a 4% discount to imported HRC from Korea and China. It will give them a significant advantage over the imported products in the short to medium term. Primary rebar prices also declined by Rs 3,300/tn MoM from the peak. It is now trading at Rs 52,200/tn.
Chinese impact on increasing exports :
Softening Chinese prices is one of the major reasons for increasing steel import in India. Currently, steel demand in China is low due to the harsh winter conditions. It has led Chinese traders to export more. Resulting in a decline in the export of HRC prices from USD 710/tn to USD 625/tn China in Jan’21
Domestic pricing scenario:
Despite the increasing exports, domestic HRC steel prices are expected to remain strongly supported by a) strong domestic demand, b) higher regional prices, and c) an uptick in steel demand in China post the Lunar Year holidays.
Primary rebar prices are expected to decline further to match the gap with secondary rebar prices. Currently, the price gap between primary and secondary steel prices stands at Rs 10,200/tn v/s the average historical average of Rs 4,800/tn. This gap is expected to converge over the next few months.