India: Steel prices to remain 'stable' in H2; 'normal' demand rebound seen

• Prices may edge up marginally in near term
  
  
• Demand backlog from Q1, Q2 to be met in remaining fiscal
  
  
• Not much clarity yet on Europe demand rebound
  
  

Morning Brief: Steel prices in India are expected to remain stable over the rest of the current fiscal year. At best, these could rise by INR 500-1,000/tonne (t) in the very short term. These were the indications received at the recent SteelMint webinar, ENGAGE 3.0, on "How will India's steel demand pan out in the short to medium term?"

"We have already seen that happening in China. There is a price correction of almost $30/t and the same could happen in India. Prices of plates, structures, rebars etc may remain stable despite volatility," informed Sushil Pradhan, Chief Marketing Officer, Jindal Steel & Power.

Because of good growth in domestic demand, we are not as impacted on the price front as is happening globally. Price corrections were seen in China and other parts of the globe. Indian prices corrected but have been stable since the last 4 weeks or so. Prices will remain stable, not surge as they used to - particularly in Q3 and Q4 (second half or H2 of FY23), stressed Pradhan.

His co-panelist, Santimoy Chattopadhyay, Head of Procurement, GR Infraprojects, speaking from the steel end-user's perspective, corroborated, "We do not see a huge surge in prices because of not too many factors. Prices will remain stable except may be a small positive movement which is normal in these two quarters, because of the productivity jack-up from the project segment."

Secondly, the higher interest rates and inflation are definitely factors that will create pressure on steelmakers and these will continue to keep prices under check.

Thirdly, Chattopadhyay reminded of the government boost to the secondary players, whereby they are also allowed to sell to government infrastructure projects, which will keep prices under check for primary producers. Earlier there was a sharp divide between prices.

"We know about the quality but in the 120 mnt of steel production per annum, a substantial portion is contributed by secondary mills. The project segment will buy from them too and competition will keep prices under check for primary mills, which is good for contracting firms," he shared.

Q3-4 to see 'normal demand rebound'

End-user's perspective: Chattopdhyaya informed that if prices are kept under check in the third and fourth quarters, then buying will be healthy.

Demand in Q3and Q4 will continue to remain strong, because it is usually in these two quarters. But, having said that, buying volumes will not be similar to that of previous years. "Whatever backlogs the contracting companies experienced in Q1, Q2 and during the monsoon - they will try to mitigate in these two quarters," Chattopadhaya revealed, adding, "And this should sound positive for the supply chain management side."

He reminded that demand will not be as good as in other years because, even though Covid is under control, uncertainty remains due to geo-political tensions and supply disruptions. "We are not bullish but see a normal demand rebound," he explained.

Chattopadhyay also said that the current scenario, in spite of its share of concerns, does not look negative for the construction or infrastructure sectors.

Steel manufacturer's perspective: Pradhan said that a good monsoon generally creates good demand for all the sectors. "This time too, our automobile sector will gain from a good monsoon. The demand for white goods and agricultural products will be robust. The automobile sector, due to its big push for EVs, will see a robust demand for cars," explained Pradhan.

Secondary mills' production cuts benefiting primary mills: Speaking about the energy inflation, Pradhan said thermal coal prices have touched levels similar to coking coal's and this has continued from the last many months. This has raised the cost of production for secondary mills. Post-monsoon, this should come down but coal imports costs are still high. So secondary mills' costing will not be lower than primary.

"Secondary mills' production has come down but primary mills have maintained their capacities. So, a drop in production from the secondary mills has benefited the primary players since that demand has come to us. A robust demand scenario has been seen in the country, mainly added by infrastructure while auto demand is up 17%. These factors are partly offsetting the impact of the export duty," explained Pradhan.

Expansion in renewables, oil & gas: Pradhan also said the steel industry is seeing huge expansions in renewable energy, oil and gas segments, fuelling demand. "They may not consume long products but plates, beams, heavy stucturuals will see robust demand," he said.

China's production cuts: China's steel production cuts, the floods in Korea which impacted POSCO's production and the Russia- Ukraine war are also helping to maintain the supply demand balance. Imports have also reduced which is helping mills, Pradhan said.

"Now we are behind the production shutdowns due to maintenance or festivals, we expect a robust demand in Q3 and Q4.," Pradhan emphasized.

Outlook
Speaking about a turnaround in Europe's demand, Pradhan said there seems no hope for such a drastic change for at least another quarter. It may take Q1CY2023 to witness a turnaround in demand. Only a few pockets like Italy is seeing robust demand. Otherwise, the Continent is still reeling under subdued demand owing to the war and inflation.

It is expected that the current adversities stemming from the ongoing Russia-Ukraine war will start dissipating from the next 1-2 quarters. Hence, production of 300 million tonnes (mnt) of crude steel by 2030 is feasible where 250 mnt can be consumed domestically and 50 mnt can be exported.