How will Indian steel price trends evolve in CY'24?

• Flat steel prices down 4% in H2CY'23 over H1, longs drop even more sharply
  
  
• Record-high imports, inventory pressure weigh on prices
  
  
• Chinese steel export volumes to influence price movements in CY'24
  
  

Morning Brief: The Indian steel industry witnessed contrasting trends in CY'23. Prices edged down in H2 of the year reflecting overall global price weakness, as well as pressure of higher imports and inventory. However, a modest recovery is expected in Q1CY'24.

As per SteelMint analysis, domestic steel prices started softening from May onwards. Benchmark HRC (2.5mm, E250) prices edged down to INR 55,100/t ex-Mumbai in December from over INR 60,200/t in March. HRC prices fell around 4% in H2CY'23 compared with H1. However, CRC (IS 513, 0.9mm Gr O) prices were less shaky - falling to INR 59,000-60,000/t exy-Mumbai levels in June-July but recovering to INR 62,500/t in December.

Average prices of reinforcement bar or rebar (Fe500D, 12-32mm) manufactured through the BF route dropped around 8% in H2 compared with H1. Prices fell from over INR 63,000/t ex-Mumbai levels in February to INR 51,000/t In July but recovered to over INR 54,000/t in December. IF-route rebar prices, too, fell sharply compared to January-February and despite a mild recovery are again under pressure due to high inventories.

Factors impacting prices

Global prices weaken: Chinese steel prices, which temporarily edged up post easing of lockdown restrictions in December 2022, witnessed a trend reversal, decreasing quickly since the beginning of April as the effect of pent-up demand withered away. Worries around the real estate sector further impacted demand and prices in China. European and US steel prices, which showed an uptrend since February, started trending downward since May amid a weak operating environment. High energy costs and interest rates affected demand, while high Chinese exports weighed on prices. Domestic prices, especially those of flat steel products, were influenced by these trends.

Record-high imports: Steel imports increased by 25% y-o-y to around 7.5 mnt in 2023. Indian steel users were encouraged to import as domestic prices were at a premium to seaborne offers. Indian steel consumption rose by around 13% y-o-y and it naturally emerged as the preferred destination for cargoes, especially from FTA countries, amid fast-falling global steel prices. Moreover, steel production edged up over 13% y-o-y and constant capacity additions created oversupply in the domestic market which weighed on prices.

Exports drop sharply: Steel exports dropped 25% to 8.2 mnt in 2023. China adopted an aggressive stance, conquering traditional markets of Indian mills with cheaper offers. Global factors like high energy prices, inflation and currency slides dented demand. A weak export scenario impacted domestic prices.

Inventory pile-up: Weak domestic and global prices nudged the primary mills to take maintenance breaks in the July-September period even as the secondary mills curtailed production. Capacity utilisation picked up from September onwards in the post-monsoon, pre-festive season. However, need-based buying behaviour amid higher domestic production and accumulation of inventories, especially of long products, exerted pressure on prices.

Rising EBITDA margins

EBITDA margins of primary steelmakers increased substantially this year as input cost pressures subsided. SteelMint data show that the EBITDA per tonne of a representative primary mill increased to $153.32/t in Q3CY'23 from the level of $42.23/t in Q3 of last year. This is due to the fact that average coking coal prices fell by around 20% y-o-y in CY'23, while iron ore prices edged down 1%. On the other hand, declining thermal coal prices in H2CY'23 boosted spreads of secondary steelmakers and encouraged higher utilisation.

However, margins may come under renewed pressure with coking coal prices rising sharply in H2 and domestic realisations weakening towards the year-end.

Outlook

Steel demand edged up 13% in CY'23 due largely to pre-election year spending. However, next year will be marked by the General Elections and projects may get into cold storage till a new government is formed. There can be funding delays after formation of a new government and awards of construction projects may get stalled as election code of conduct kicks in. Another 17 mnt of capacity will be added in CY'24 which will take up the total to 184 mnt.

So, if demand does not increase at the same pace in CY'24 there will be surplus supplies and domestic steel prices may come under further pressure especially because inventories in the system are high.

So, mills may have to raise export allocations. However, China's presence in the export markets may well remain at the level of around 8 mnt/month if government policies and stimulus fail to trigger a recovery in domestic demand. China took over India's traditional export markets such as Vietnam and the Middle East in CY'23 with cheaper offers. In such a scenario, Indian mills will be limited solely to the EU market as it has quotas.

However, the toughening of regulatory mechanisms and BIS standards may well have the effect of reining in imports, thereby supporting steel prices.

2nd India Steel and Metal Conference: Keeping above dynamics in mind, SteelMint, along with the Steel Users Federation of India, will be organizing the 2nd India Steel and Metal Conference: Supply Chain & Sourcing Strategies, over 10-11 January, 2024 in Mumbai. Several key sessions will explore the current challenges and enablers. Experts will also try to read future trends.

This is the only conference focusing on steel end-user industries and their issues. It will be followed by the glittering SUFI Steel Awards, 2023. Register fast.