Subdued demand and weak international prices of steel will continue to impact prices of the commodity in India, said industry experts. Restricted construction activity during the monsoon led to muted domestic demand in the September quarter, while slowing global economies and rising interest rates are adding to the concerns over global steel demand and pricing, they added.

Demand from China, the world’s largest consumer of commodities, is also muted, following a real estate crisis and covid-led lockdowns. As a result, analysts are not too optimistic on the sector for the near term.

Duty exemptions on exports is leading to higher domestic inventory, but the government may not withdraw it soon, said analysts. Domestic prices of hot-rolled coil (HRC) steel, used in automobiles and home appliances, rose 23% during the January-April period, but have since fallen 28% to ₹57,000 a tonne, 9% lower than the June quarter average, said Jefferies India Pvt. Ltd. in a 25 September report. Though domestic steel prices are 6-11% above import parity, Jefferies expects more downside risk.

With China witnessing subdued demand and rising exports, steel prices may be under pressure. Chinese steel exports were up 21.8% from the year earlier in August, while demand fell 4%, said Nomura Research. Steel exports in August was higher compared to the corresponding months of 2018 to 2021.

With average steel prices down sequentially, margins of Indian steel makers may have peaked in the June quarter. High input costs, especially coal, are likely to add to concerns on their margins. The saving grace, however, is falling debt levels of companies due to a favourable steel cycle in the earlier quarters. Therefore, lower interest costs will continue to support earnings.

The duty on steel exports by the government in May helped bring down prices, but led to surplus inventory.

India is an oversupplied steel market and exported 13mt (million tonnes) in FY22 (12% of total production); the imposition of 15% export duty in May resulted in exports falling to an annualized rate of just 5 mt in July-August, said Jefferies. Steel inventories were at the highest levels in 18 months in August and up 20% from the year earlier.

While the prevailing moderate international steel prices may not lift margins significantly, it can help liquidate high inventories. However, analysts don’t expect the withdrawal of the export duty anytime soon.

Steel demand in India is likely to regain some momentum after the end of monsoon with the festive season driving sales of cars and consumer durables. Coking coal prices, which have been softening for a while, may rebound with the deepening of the energy crisis, which will boost steel prices.

The ministry, however, expects global steel supply to fall, resulting in an increase in prices (global production fell 5.5% from the year-ago in the first half of 2022), said Nomura analysts.

A roll back in export duty may also lead to a rise in steel prices, dampening demand, said the analysts at Nomura. The government may reconsider a rollback based on steel price trends in the December quarter, once inflationary pressures subside, they added. Source: Livemint