India: HRC trade prices fall to nearly 2-year lows

Indian trade level HRC (IS2062, 2.5-8mm) prices fell to almost a 2-year low post the revision of list prices by tier I mills for early December sales.

It is to be noted that Indian tier-1 mills have cut list prices for hot rolled coils (HRCs) by upto INR 3,000/t ($36/t) and cold rolled coils (CRCs) by upto INR 4,800/t ($58/t) for early December.

SteelMint's benchmark HRC (IS2062, 2.5-8mm) weekly price assessment stands at INR 54,100/t ($657/t) and for CRCs (IS513 Gr O, 0.9mm) at INR 60,300/t ($733/t). Prices are on an exy-Mumbai basis, excluding 18% GST.

Why are trade levels prices at nearly 2 years low?

1. India's steel exports in Jan-Sep'22 drop 39% y-o-y: India's steel exports over January-September, 2022 show a steep 39% drop to 8.93 million tonnes (mnt) against 14.60 mnt seen in the same nine months in 2021 (9MCY2021), reveals data maintained with SteelMint. The 15% export tax imposition from the third week of May, 2022 had a deep impact on overseas sales from Indian mills. Despite the tax getting revoked, exports have failed to pick up due to tepid global demand scenario.

2. Drop in raw material prices: The prices of raw materials like coking coal and iron ore have dropped. For instance, coking coal (Australian premium HCC) prices have dropped m-o-m to a monthly average of $301/t CFR Paradip in November against $309/t CFR Paradip in October. Prices have fallen on the back of low buying interest amid sluggish global steel demand as well as concerns related to oversupply.

Odisha iron ore fines index (Fe 62%), remained largely range-bound m-o-m at INR 3,550/t ($43/t) in November compared with INR 3,560/t ($43/t) in October.

2. Cheaper imports option a concern: Inflow of cheaper HRC imports into the domestic market is one of the prime reasons for the continuous fall in domestic trade level prices. For instance, as on 30 November, the landed cost of Japanese HRCs on exy-Mumbai basis stands discounted by INR 7,779/t ($94/t). Furthermore, market sentiments continue to remain bearish as distributors are in destocking mode and not placing orders with the mills.

4. Inventory pressure: Indian tier-1 mills are currently operating at optimal capacity. Most of the mills are aiming to achieve their production guidance of FY23. For instance, JSW Steel operated with a capacity utilization of 93% in the month of October. India's crude steel output was recorded at 10.45 mnt in October 2022, SteelMint data shows. However, exports still have not recovered, as a result of which domestic flat steel prices are being pressured by high inventory levels.

Outlook: Trade-level prices of HRCs and CRCs are likely to remain under pressure and correct further by up to INR 1,500/t ($18/t), SteelMint understands from market sources.