Why Indian Steel Prices may Not Fall Soon?
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Indian steel prices have been range bound in last few weeks. Although all the major steel makers have kept their prices unaltered for October. Question arises, whether prices have any scope of correction in coming months?
There are several factors that may support Indian steel prices and any significant fall is not foreseen. Market participants believe that Indian domestic prices are still lower than the global level. Even if global prices correct by USD 20-30/MT from here, Indian exporters will have better realizations as compared to domestic market.
Indian Domestic & Import/Export reference prices as on 12 Oct 2017
| Products & Specifications | Origin | Prices in INR/MT | Prices in USD/MT |
| Coke, BF grade | Domestic, ex-works, east India | 22,200 | 341 |
| Imported, CNF India | 24,700-24800 | 381 | |
| Pellet, 6-20mm, Fe 63/64% | Domestic, Ex-Durgapur | 5,000 | 77 |
| Exports, FOB India | 6,825 | 105 | |
| Scrap, HMS (80:20) | Domestic, Ex-Mumbai | 20,500 | 315 |
| Imported, CNF India | 19,500 | 300 | |
| Billet, BF grade 150*150MM | Domestic, Ex-Durgapur | 26,500-27,000 | 408-415 |
| Exports, FOB India | 31,500-31,900 | 485-490 | |
| Sponge iron lumps, FeM 78-80% | Domestic, Ex-Durgapur | 17,500 | 270 |
| Exports, FOB India | 20,400-20,500 | 315 | |
| Re-bars, BF grade 12mm | Domestic, Ex-Mumbai | 32,500-33,500 | 500-515 |
| Exports, FOB India | 34,400-34,800 | 530-535 | |
| Wire Rod, BF grade 5.5 mm | Domestic, Ex-Mumbai | 35,500-36,500 | 547-561 |
| Exports, FOB India | 35,700-36,400 | 550-560 | |
| HRC, IS2062, 2.5-8mm | Domestic, Ex-Mumbai | 38,000 | 585 |
| Exports, FOB India | 36,700 | 565 | |
| Silico Manganese, 60-14 mm | Domestic, Ex-Durgapur | 64,500 | 990 |
| Exports, FOB India | 66,300 | 1,020 |
Indian domestic prices are excluding GST
Export/Imports prices of excluding taxes
Source: SteelMint Research
1. Indian steel exports will remain strong
Among the most dominant factor that may support steel prices is higher steel exports from India in coming months. Indian exporters are enjoying higher realizations from exports and will continue to do so owing to depreciated Rupee and absence of Chinese steel. Above that Europe has set definitive anti-dumping duty on China, Iran, Brazil and CIS. This will give advantage to Indian cargo.
Indian steel exports have noticed a significant jump of 160% in 2017 (Jan-July) against 2016 during same period.
Speaking to Indian steel makers, we learnt that more quantities will be offered for exports in coming months. Even if global prices correct by USD 20-30/MT, export realization will be still at par with domestic market.
2. Lower steel exports from China
We expect steel exports from China to decline in coming months due to several curbs imposed by Chinese government on steel production. Chinese steel exports are likely to fall to 75 MnT in 2017 against 108 MnT in 2016.
3. Higher raw material cost
Higher raw material pricing is among the key drivers for steel prices to remain firm. Prices of coal and coke are still higher than the average prices of last year. Coking coal prices for Q2 FY18 was at USD 200/MT, which was USD 137/MT in Q2FY17. Thermal coal prices (from South Africa) for Q2 FY18 was at USD 73/MT, which was USD 53/MT in Q2FY17.
Increasing power tariff is another factor that should support domestic steel prices. India's 45% of steel is produced through induction furnace or electric arc furnace. Several states have raised power tariff or are in the process of increasing it. In this scenario, mini steel plants would prefer to cut down their operations if steel prices fall abnormally.
4. Expensive imports
Indian imports have dropped by 24% from 4.9MnT in 2016 (Jan-July) to 3.72 MnT in 2017 (Jan-Jul). Scope of imports are low owing to disparity between domestic and landed cost of imports. More than 50% of Indian imports are from Japan and Korea. Ministry of Trade, Economics and Industry, Japan has predicted a fall in exports by 5% for next quarter owing to strong domestic demand. Similar situation stands with Korea.
There may be certain risks that cannot be ignored, some of them are
1. Subdued Indian demand
2. Liquidity issue in Indian domestic market
3. Slowdown in China
4. Currency fluctuations
