Indian steel mills set to raise prices in Oct

Will mills raise steel prices in Oct'21? Most of the companies SteelMint spoke to say they will, by INR 1,000-1,500 per tonne, with one mid-sized eastern-region-based player eyeing a hike of INR 2,000-3,000 /t in longs while another producer informed of a price increase in flats by INR 1,500 and INR 3,000/t in longs.

"Prices will surely go up next month, depending upon product category, mainly on the back of increasing coal prices," said an official with a leading mill.

The trade segment too is abuzz about the impending hike.

SteelMint understands that mills will raise list prices in the first week of October, then weigh options mid-month on further hikes, roll-over or trade level rebates - depending on market behaviour.

Reasons for the expected price hike

• Runaway coking coal inflation: The common reason behind the impending hike is the runaway inflation in coking coal prices. India's import prices of the premium Australian HCC 64-mid vol have trebled from monthly average $100/t CNF levels in Aug'20 to $255/t CNF in Aug'21 and are currently touching $364/t CNF. The benchmark Australian premium HCC too scaled heights from $122/t CNF India in Aug'20 to $287/t CNF in Aug'21, skyrocketing to $420/t CNF levels in Sept'21.
  
  

The coking coal contracts are inked on a quarterly basis between mills and suppliers but since these are forward bookings, there is a lag of a quarter. However, mills will face the heat of escalating coking coal in the Oct-Dec'21 quarter because prices have been rising for almost a year now.

• Surging ferro alloy prices: Ferro alloys prices have increased globally, since many of these power-intensive units have closed in China.
  
  

The reasons for the coking coal and ferro alloy price surge is China. Global coal prices have been spurting ever since China slapped the ban on Australian coals in Oct'20, turning to other origins like Russia, US, Canada, Mozambique etc while ex-China markets boosted Australian prices.

China's power crisis is having a far-reaching effect. It is following the dual policy of curbing energy consumption and supply reduction. This is impacting ferro alloys production, pushing up prices and Indian mills too are feeling the pinch of high prices which will continue into the Oct-Dec'21 quarter.

In fact, in mid-September, because of the power crisis, China's daily crude steel production has slipped down below 2 million tonnes per day, a record two-year low, data from the China Iron and Steel Association (CISA) reveals. The country was aiming to keep its crude steel output at CY'20 levels. But, at this juncture, the output may be lower than expected.

Factors that will support price hike

• Consumption ahead: Demand improved in September, although not to the extent expected because of the delayed monsoon, which will leave late too.
  
  
• Festive outlook: Auto companies are facing chip shortages. But the festive season is approaching and consumer durables consumption increases during this period. India's largest auto maker, Maruti Suzuki India, has already indicated it will increase production in Oct-Nov'21. Mills are therefore hopeful of steel demand rising in tandem.
  
  
• Global price rally expected: Most mills, at this juncture, say they are not under pressure or desperate to sell because they have export orders till at least mid-October. Where November is concerned they are not in a hurry to book, but would prefer to wait and watch since the global situation is changing fast, especially in terms of coking coal. Mills in India feel global steel prices will rise because of rising fuel (coal) prices (although iron ore prices have cooled to a great extent). Japanese, Korean Chinese and Vietnamese mills will have to hike their export offers from the existing levels to offset their coking coal costs, which will support firmer Indian export prices. It is heard that the Chinese, Japanese and Korean mills are holding their export offers, scanning the coking coal price outlook in the coming weeks.
  
  
• China holiday: China is going on a 7-day holiday starting 1 Oct'21. China's markets will thus stay subdued over the next 7-10 days. SteelMint expects a lean period for Indian mills over this period - at least till 7 Oct'21. They may turn active in exports only around 10 Oct'21.
  
  
• Lower inventory: Steel inventory, especially for longs, are on the lower side. A State-owned mill has been active in billets exports and understandably does not have too much of rebar inventory to supply to the domestic market. Other primary mills too have liquidated most of their inventory, a factor that would support the price hike.
  
  
• Coal scare for smaller mills: Long products are largely driven by the smaller players who are also struggling due to lack of domestic coal availability and cost pressure of imported prices. Both factors would either raise their cost of production or force them to operate at a lower capacity. Under such circumstances, they will not be in a position to cut prices. Since they cater to almost 60% of the domestic rebar demand their firm prices will support high prices from the larger mills.
  
  
• Shipbuilding surge: A surge in shipbuilding orders from Korean, Japanese and Chinese companies is making Indian flats producers bullish on HR-plates export and prices, SteelMint learnt.
  
  

Meanwhile, a pan-India infra construction company told SteelMint that construction steel prices have increased over the last nine months and do impact project costs "but mills also consider when we place bulk orders".

Outlook

Rising cost of production is definitely a key concern for mills, going into Q3 (Oct-Dec). But lower inventory, monsoon withdrawal and festive demand would lift sentiments in the new quarter.

That apart, new quotas for Europe from January and Vietnam's eased Covid curbs would also spell good news in terms of exports.

The power crisis is a double whammy for China's steel mills. Already facing production cuts, they are further being forced to reduce output, because of the power crisis, especially the power-guzzling EAFs. If China produces less crude steel, it would import more billets and export less. China's absence from the global billet exports markets would open up increased opportunities for Indian mills.