It remains to be seen how the festive demand pans out with automakers expecting the season to boost sales. Also, resumption of construction activities would augur well for steel demand.
Steel prices in domestic markets are regaining their lost shine, albeit gradually. One factor aiding prices is production cuts, which has resulted in falling inventory levels.
“We note that hot-rolled coil (HRC) prices rose by ₹1,000 per tonne to ₹57,500 per tonne while cold rolled coil (CRC) prices increased by ₹500 per tonne to ₹66,200 per tonne on reduced inventory levels in last week of Sep-2022,” said analysts at Nomura Financial Advisory and Securities (India) in a report on 10 October.
“But for the week ending 7 Oct-22 prices have been stable (channel inventory has halved month-on-month, according to SteelMint),” said Nomura analysts.
Note that the prices are higher versus pre-covid levels. Also, they are at a premium to import prices from South Korea and China. This means domestic steel companies such as Tata Steel Ltd, JSW Steel Ltd and Jindal Steel & Power Ltd are at a risk from potential increase in imports.
Shares of these companies are 17-28% below their respective 52-week highs. Recall that share prices had dropped significantly post the levy of export duty on steel in May. This remains a sentimental overhang on the stock.
Due to this, exports remain subdued. Weak global demand is not helping either.
“We expect steel production to rise in Q3FY23 as maintenance activities are completed, which can lead to steel price weakening on improved supplies if raw material price levels are maintained,” said Nomura analysts.
Prices of iron ore have remained stable. But coking coal costs are on the rise with prices having risen by $8 per tonne week-on-week to $253 per tonne in October so far, said Nomura analysts. Overall, average HRC spreads in Oct-22 so far have increased 1.4% month-on-month versus Sep-22 levels, they added.
It remains to be seen how the festive demand pans out with automakers expecting the season to boost sales. Also, resumption of construction activities would augur well for steel demand. Source: Livemint