What lies in store for Indian steel sector in July?

• Crude steel production may drop by 10-15% in Jul
  
  
• Supply-demand imbalance to be restored
  
  
• Prices look weak in July, August may see some uptick in demand
  
  

Morning Brief: The steel industry, in June, continued to reel under the after-effects of the export duties slapped from 22 May, 2022. Prices corrected downward by around 10% as the market remained dull throughout the month with both domestic and overseas buyers in wait-and-watch mode. The former mainly bought construction steel, that too not in significant volumes, while prices fluctuated with a pronounced southward influence.

"The secondary and primary price spread narrowed to a point where the former's demand segment almost started flowing into primary," observed a source.

But what lies in store for the Indian steel market in July? SteelMint explores.

Production cuts
July will possibly see crude steel production drop of 10-15% as mills opt for maintenance shutdown.

A leading primary mill has taken maintenance shutdown at its flagship works which will reduce crude steel output by up to 20% at this plant, SteelMint heard from reliable sources. The buzz is that its other plants will also see similar temporary shutdowns and production cuts.

Another primary mill is weighing temporary shutdown and production drop. "Till now we have not gone for a temporary shutdown, but may do so soon because demand is weak, inventory is piling up and exports are unviable," said a mill source.

The market buzz is that other primary mills will also opt for maintenance, keeping in view lackustre demand, which may be further dulled by the monsoon.

It may be mentioned, India produced 10.62 mnt of crude steel in May 2022 and 53.02 mnt over January-May, 2022.

Meanwhile, secondary mills, plagued by high power and imported coal costs, have already reduced capacity utilization by around 30% over the last few months.

Supply-demand imbalance to be restored
The production cuts will help mills to recalibrate the current supply-demand mismatch.

Demand has not exactly dried up, with enquiries increasing in water, renewables and oil and gas sectors as steel market prices are below their considered levels. But end-users are not booking in anticipation of further price falls.

The 15% duty on most finished products has made exports unviable. Although mills tried to work around the export tax by resorting to boron-added hot rolled coils, in reality, this will have very few overseas takers.

Flats may correct sharper than longs in July
With inventories high, mills are open to offering discounts on a one-to one basis for July sales, although there may not be official price cut announcements, it is learnt. Sources said HRC prices could be lower by INR 3,000-5,000/t over the June levels of around INR 65,000/t.

"Prices should correct in July," said a source, adding, "Overall, prices may see a correction by INR 2,000-3,000/t from mid-July."

Another source said, "Whatever pre-monsoon buying had to be done is done... price correction in rebars from primary players is expected to be of INR 1,000-2,000/t."

Russian imports gaining ground?
Even if exports are in a stalemate, Russian HRC imports at aggressive pricing may gain ground. Sources hinted that a Russian-origin parcel of HRCs was booked at $600-610/t CFR. However, SteelMint could not confirm the deal.

These deals overall are being transacted in roubles and, in dollar parity, are estimated at $600-650/t, as per another source.

Outlook
Despite the rainclouds, mills could see some sunshine in August. Inventories have piled up at mills, but these are low across the marketplace and thus restocking demand should return.

"It may be recalled, end-users refrained from procuring over April-May because prices were too hot to handle. In June, they waited for further price corrections and July is expected to be lean. However, August onwards, inventory at the trade-level being low, demand pick-up can be expected. The monsoon starts ebbing from some portions of the country by end-August which may lift construction demand," said a source.

There are talks of withdrawal of the export duty. If it is removed as abruptly as it was imposed, there would be a spur in the market.

A global recovery in prices is likely to see an uptick in export demand and offers. That apart, EU demand is expected to pick up and so enquiries for HRC cargoes for October shipments should improve.

Some participants see the markets bottoming out next month and stability returning post-July.