India steel index remains in negative zone; near-term outlook bleak

• Domestic steel prices subdued amid global downturn
  
  
• Coking coal prices drop sharply, bottom not in sight
  
  
• Scrap shortage likely to keep IF/EAF steel market supported
  
  

Morning Brief: SteelMint's flagship India Steel Composite Index, a barometer of the domestic steel market, edged lower by 0.8% w-o-w to 150.4 points on 19 May, 2023 compared with 151.6 points, as assessed last on 12 May.

Notably, the Flat Steel Composite Index slipped sharply by 1.2% while the longs composite index witnessed a drop of 0.3% w-o-w.

Amid the general weakness in the domestic steel market, prices have been on a decline; however, flat steel prices seem to be more influenced by global trends, partly due to export market exposure. Long steel prices, on the other hand, are also battling weak demand but the upside comes from low availability of ferrous scrap.

Factors weighing on index

• HRC export prices drop: SteelMint's India HRC (SAE1006) export index inched down by $2/t w-o-w to $595/t FOB east coast India, as assessed on 16 May. Cheaper Chinese offers are exerting a pressure on the market even as demand is yet to recover in an inflationary environment. European buyers are in a wait-and-watch mode anticipating a decline in domestic prices. As the differential between landed HRC imports and domestic prices has skewed, domestic steel prices have come under pressure.
  
  

• Pressure on domestic prices: Indian steel mills have cut HRC prices up to INR 2,500/t ($31) for May and SteelMint's India Flat Steel Composite Index had dipped 0.6% w-o-w to 154.7 points (156 points) on 15 May much more sharply than longs on global weakness, falling raw material prices and export offers. Largely due to the fact that import prices are extremely competitive vis-a-vis domestic prices, trade-level steel prices are expected to remain under pressure. The construction steel market is also expected to witness sluggish growth despite the fact that India has performed better than other countries in tackling inflation. However, the beginning of the fiscal year usually is a slow period for construction projects.
  
  

• Coking coal prices fall: Premium coking coal prices on a CNF India basis have dropped sharply since 1 April on weakening Asian demand amid steady supplies. The cost pie chart of Indian steel producers typically has a share of 40-45% for imported high-grade coking coal in the production of one tonne of crude steel. So, the over $80/t decline in Australian high-grade met coal prices over the last month or so has come as a major cost relief for the integrated mills. Australian miners are expected to ramp up supplies before the end of the Australian fiscal year on 30 June. So, prices are expected to remain under pressure. The decline in key raw material prices has had a direct impact on steel prices.
  
  

Outlook

The prospect of steel prices rising in the near-term appears dim, although pre-monsoon restocking of long steel products for the projects segment may keep the momentum going. In addition, the Indian customs halting clearances for ferrous scrap imports from the UAE has created a scarcity in the domestic market, which may keep prices supported overall for IF/EAF steel producers. However, raw material prices, such as that of iron ore, are entering a seasonal cyclic downturn and are likely to remain subdued due to lack of procurement as pellet producers go on maintenance breaks amid the general downturn in the domestic market as well as exports.