What we Learnt from our Recent Visit to Indian HRC Traders?

In recent visit to HRC traders based in Faridabad, SteelMint learned following insights from current market scenario:

1.Prices are falling on weak demand- HRC prices in trade market have corrected by around INR 1,000/t ($14/t) in last one month owing to weak demand.

Indian auto sector has reported worst performance in last two decades as August sales drop 23% across all segments. This has also lead to fall in demand from other ancillary industries associated to auto sector.

HR Coil (SAE 1006, 2mm+) prices are hovering at INR 35,500-36,000/t ($495-505/t) Ex-Yard, Faridabad (NCR) in the wholesale market and similar levels were reported in Mumbai.

Bulk offers for tube mills are reported at INR 34,500-35,000/t ($480-490/t) delivered to plant site on cash payment.

It is learnt that mills are fetching a domestic realization of around 32,500-33,500/t ($455-465/t) on ex-mill basis.

2.Liquidity issue in the market- Liquidity remains a critical issue in the market. Traders are unwilling to give credits to OEMs and other retailers on extended credit cycle.

According to data released by the Society of Indian Automobile Manufacturers (SIAM)domestic car sales went down by 41.09 % to 1,15,957 units as against 1,96,847 units in August 2018.Motorcycle sales last month declined to 22.33% to 9,37,486 units as against 12,07,005 units a year earlier.Sales of commercial vehicles were down by 38.71% to 51,897 units in August.Auto companies are announcing non-working days due to a sharp drop in car sales.

3.Inventories at traders level fall but increase at mill level- Most of the traders are not holding inventories on low sales and liquidity issues. Participants also mentioned that some dealers are defaulting on monthly quantity commitments signed with steel mills.

JSW Steel sale-able steel sales stood at 3.75 MnT in Q1FY20 move down by 13% as compared to 4.29 MnT in previous quarter.The company fell short of sales guidance by 2,50,000 MT.

As per concall highlights SAIL mentioned that finished steel inventory stood around 1.5 MnT by end of June quarter.Thus finished steel inventory increased by 2.88 lakh tonnes in Q1 FY20 against previous quarter.

4.Any demand trigger will see a sharp price rise, but unlikely to see in short term-Market participants believe, any trigger in demand will result in sharp rise in prices as end user and traders are not holding enough inventories. Participants are hopeful next quarter to be better than the current quarter.

5.Imports are limited- Global prices are also on downward trend, although India is immune to falling prices as imports attract an anti dumping duty below $489/t CIF India levels. This means, landed cost of imports can not be less than INR 36,000-36,500/t, considering INR at 71.5 against USD.

6.Exports seen sharp increase- Indian mill are compensating their domestic surplus with aggressive exports. According to port data maintained by SteelMint, export shipments of HRC from India reported a multi fold increase in August at around 500,000 MT against July 200,000 MT.

According to SteelMint analysis, exports are fetching a realization of INR 30,500-31,500/t ($425-440/t) on Ex-mill basis to Indian mills.