What lies in store for Indian steel market in April?

• Domestic demand to stay subdued next month
  
  
• Secondary mills may have to opt for production cuts
  
  
• Coal shortage, lack of liquidity plaguing smaller mills
  
  
• Large mills comfortably booked for April
  
  
• May could be a time of pressure as mills need to scout for fresh export markets
  
  
• China's aggressive pricing may force Indian mills to reduce export offers in May
  
  
• Have prices peaked; will they bottom out in May?
  
  

Morning Brief: April sees the start of the new fiscal and, thus, is a new beginning, in many ways. Global tensions are having a far-reaching impact on prices, fuelling inflation. Crude prices have headed north, sending petrol and diesel up and slackening demand at the macro level. How will the demand-supply-exports-prices matrix play out? SteelMint goes behind the scene.

High prices to keep demand subdued

Demand is slated to stay subdued in April. Heated up finished steel prices have pushed end-users like infrastructure and automotive to the sidelines. Although infrastructure projects do not have the option to stop, the segment has lessened procurement by 30-40%. Similarly, automotive will reduce production since input materials other than steel have become expensive too. Moreover, with inflation rearing its head, demand for cars may see a drop in April-June, 2022 as consumers' purchasing power takes a hit. Consequently, auto players, working with costly raw materials, will only produce based on forward bookings to avoid inventory pile-up, which may lead to a drop in automotive steels demand in Q1.

Production from secondary mills may dip

This is likely to decline in the upcoming month, especially from the secondary sector which does not have exposure to banks but their working capital has increased on the back of rising raw material prices. Even if they have exposure, they will need collateral to increase their borrowings, which most do not have. Naturally, they do not want inventory pile-up at these price levels and are resorting to need-based buying.

Sponge players, for whom thermal coal is a major feedstock, may have to drop production temporarily if they do not get enough coal. Doubts are already been cast on whether the non-power sector will receive adequate coal since most of it is being diverted for power generation as the scorching summer sets in, while imported prices are sky-high.

Export levels comfortable; May uncertain

Most mills are comfortably booked till April, especially to Europe and, to an extent, Turkey and Vietnam. March saw most bookings and deliveries happening for Europe, and at higher prices. Mills seized the 6-7 million tonnes/month gap in steel exports from Russia and Ukraine to European Union and MENA countries. Europe comprises 15-20% of their total export sales.

Mills were, so far, not open to selling to the Southeast Asian region - although it is traditionally their largest market - because prices are low and this market is being fed by China currently. "Both Southeast Asia and MENA are receiving material from China at comparatively lower prices," said a source.

However, mills will have to scout the export market actively in both April and May, in apprehension that high prices will dull demand in the first quarter (April-June). They will be keen to deliver April shipments at higher offers while May bookings may command lower quotes (where the buyer, booking at a competitive price, would be willing to wait for a month).

Thus, they have resumed offers to the Middle East although there are none for Vietnam or Turkey currently.

Indian mills also capitalised on pig iron exports to the US, which is not the usual destination and demands stringent quality restrictions. India filled the gap in the absence of Russian exports. The prices commanded were higher (at $800/t FOB) than that of even billets ($760-770/t FOB).

"Mills will have to scout for exports since their entire export allocation cannot go to Europe. But the problem is China is actively feeding these markets (read Southeast Asia) with finished items, billets, slabs etc, at prices lower than India's. Where April is concerned, mills are comfortable placed but they may be under pressure in May and compelled to explore other export markets, although these may not pay as highly as Europe did," corroborated a source.

Imports unviable at high prices

There have been enquiries for colour coated and galvanised but volumes are not high. Imports are not an option at the current high global prices of $1,100/t CFR, with shipments slated a month later.

Have prices peaked?

Prices will remain firm in April due to high-value export orders in hand and some domestic bookings too.

But May can be a slightly different story. There is a buzz that raw material prices may start dropping in a couple of months' time, which will reduce finished prices too.

Thus, perhaps, steel prices have peaked and May could see a gradual decline.

"Input costs will have to return to normalcy since these are at unsustainable levels and driving buyers away," reminded a source.