Indian HRC import prices at discount to domestic. What to expect in near term?

• Landed prices of imported HRC trending lower than domestic
  
  
• Lower export allocations from exporting countries good news for Indian mills
  
  
• High currency fluctuations, long delivery periods dissuading importers
  
  
• Domestic mills confident of wooing back end-users with lucrative offers
  
  

Morning Brief: The current prices of landed imported hot rolled coils (HRC) are at 6-7% discount to domestic, but these do not seem to be a cause for worry for Indian mills. Landed prices of import have been hovering at around $600-620/t CFR India while domestic trade-level ex-Mumbai HRC prices have traversed INR 57,000/t ($701/t) levels of late.

The buzz in the market is that mills neither see a threat in these prices nor in the volumes though news of such cargoes have been popping up for some time in trade circles.

It may be mentioned that since India has inked free trade agreements (FTAs) with Japan and Korea and other ASEAN countries, their exports attract nil duty but Russian and other-origin cargoes carry a import duty.

Why are HRC imports not a spot of bother?
Russian export allocations drop: Domestic demand has improved in Russia, as a result of which mills there do not have too much of export allocations much to the relief of Indian mills. "Because of the high domestic demand in Russia, there are not too many offers of Russian cargoes in India currently, at best 2-3 parcels, cumulatively at around 100,000 tonnes," informed a source.

"One consignment has already landed while two more are in the pipeline and will possibly get delivered over the September-October," the source added.

SteelMint heard that three major mills in Russia export in large numbers. However, of these, two sold substantial volumes to set non-EU markets and for whom the EU sanctions have not been much of a bother. On the other hand, a larger portion of the third mill's allocations was for European buyers. With the sanctions kicking in, it has naturally had to scout for alternate markets, India being one. "But still Indian mills are not worried at present, with the import volumes being low, much of the production being directed towards the Russian home market," corroborated another source.

High currency fluctuations
The Indian rupee (INR) has weakened sharply, nudging 80 the dollar for an extended period and people in the know feel it could fall further from there with no easing in the geo-political tensions. It will not be surprising if the Indian rupee falls to 82-84 -levels, observed a source. As a result, most importers do not want to opt for such a steep forex outgo. Hedging also comes at a cost which no importers want to incur at present against the current geo-political unrest.

Long delivery lead time: There is a two-month lag in the delivery of Russian cargoes. If these get booked in the current month, the delivery will happen two months hence. This is a long lead time and amid a subdued demand scenario, no importer is wanting to take such a long position.

"Importers are uncertain whether they would be able to sell the cargo that will land two months later, even at the discounted prices," said the source.

Pricing power dynamics
Moreover, with much consolidation having taken place in the Indian steel industry over the last few years, pricing power dynamics have changed over the last few years, SteelMint understands. It may be recalled that many of the standalone merchant re-rollers either shut shop, unable to compete, or got acquired by larger mills which already have their own HRC manufacturing facilities. As a result, the pricing power in the domestic market has concentrated in the hands of the key HRC producers who often ink one-to-one discounted contracts with their end-users.

For end-users like pipes makers etc who need steady supply of material, imports with a long lead time may become an uncertain proposition and the scales often tip in favour of domestic producers, which has shrunk the market for imported HRCs.

Outlook
Japan, Korea and Russian domestic demand will continue to rise amid limited export allocations and currency fluctuations possibly in the short to medium term, as per latest indications. China will likely concentrate on its domestic consumption through an infra push to rev up its economy. These factors will, of course, create a case for lower HRC imports into India and consequently mills can breathe easy in terms of their domestic pricing strategies.

Indian prices, on their part, will be impacted mainly by demand dynamics and raw material cost push. "Imports will not have any sway over Indian HRC prices but only subdued demand trends, if any, and the movement in raw material prices," corroborated a source.