India: Why are steel mills mulling a price hike?

Where are steel prices headed as we enter the new fiscal? India has performed much better than the rest of the world, including China. The first 11 months have shown a growth in steel consumption of almost 12%.

Why are steel prices not low in India?

But mills are worried over the current price trends based on a few factors.

1. The cost factor: The raw material cost push is bothering them. Coking coal may have come off its peak of above $600/t FOB levels but still remains high, ruling at $350-365/t levels against the average of $260/t in 2021. "Global markets have responded to this high raw material price range, except India. Today, global prices have moved up. In the US, hot rolled coils are in excess of $1,200/t while EU prices are in the range of Euro 775-800/t," said a source, stressing that Indian steel prices are still lower by INR 5,000-6,000/t against global.

"Imported thermal coal has moderated but these had skyrocketed by 102% y-o-y in 2022. Where domestic is concerned, the power cost today is higher compared to three years ago. Even after moderating, coal prices are more than double," argue others.

A primary mill source, accepting that commodity prices will not go back to levels seen three years ago because the base has changed, observed to SteelMint that $250-270/t are workable levels for coking coal and in iron ore, $75-80/t for the benchmark Fe62%. "The government's infra push is also budgeted on certain commodity cost assumptions," the mill source reminded.

Coated products too are feeling the cost heat. Zinc has corrected by $2,900-3,000/t. But these will not return to $22,000-23,000/t. "I do not see zinc going down below $28,000/t," the source indicated.

2. Export offers rise: "China's HRC FOB prices are at $680-690/t but Indian prices are still more competitive," stresses another source. Global export offers had risen, especially to the EU.

Imports a worry?

The reason behind the tempered steel prices is the imports threat, the source reasons. "It may be recalled India was targeted with cheap imports in the last 3-4 months. In February, India again became a net importer," said a primary mill source. Total steel imports in CY22 were up 25% to 4.91 mnt against 3.94 mnt in 2021.

Industry sources feel, with a global slowdown in demand and with India emerging as a good growth story, it should not be targeted as an easy dumping destination. In the short term, though imports are not a worry as these are pricier compared to domestic.

Outlook

Domestic steel mills are under pressure and the indication is there should be a northward movement in prices. "Ideally, the rise should be higher but levels of INR 1,000-1,500 should definitely happen," a source informed.

The secondary longs segment, enjoying 60-65% of the market, has not been doing well for some time. But a pre-monsoon comeback is expected from mid-April. Many producers do not have the capacity to hold stocks for long and the current cost push is not feasible for them either.

"To survive, either raw material prices will have to correct or longs prices will have to move up too," said a source.