Posted on 12 Aug 2024
Morning Brief: Indian steel prices are grovelling at record lows. BigMint's data reveals that the benchmark trade-level hot-rolled coil, exy-Mumbai is scraping the bottom of the barrel. July 2024's price averaged INR 52,267/tonne ($623/t), which is more than a three-and-a-half year low, since the level that comes closest to this was last seen in December 2020 at INR 52,200/t ($623/t).
Benchmark rebar prices in the project segment have fallen to a one-year low of INR 49,000-50,000/t ($584-596/t) FOR Mumbai. It may be noted for tier-1 mills, around 70% of their sales are to projects. Trade-level BF rebars are currently at a four-month low of INR 53,375/t ($636/t) but, if these fall below INR 49,000/t ($584/t) levels, which is a possibility given the current circumstances, then these too would be hitting three-year lows.
Factors driving down prices
China factor, geopolitics hammer down prices: China, being the price-setter, is playing a pivotal role in driving this downtrend. Its aggressive export policy in the face of its own economic crisis and exponential price under-cutting is causing havoc in global steel export paradigms -- its offers for HRCs in July 2024 were possibly at their lowest at that juncture, at $512/t FOB, but plunged to an all-time low of $495/t in August till date. Its domestic steel major, Baosteel, reduced HRC prices by $14/t for August sales to $478/t, their lowest this calendar. Vietnam's Hoa Phat has knocked down its HRC prices by a hefty $110/t CIF HCMC since January 2024's $640/t to $530/t so far in August. Formosa's prices fell a steep $86/t to $575/t in July from $661/t in January.
This scenario is snuffing out chances of other exporting countries to complete in the global market and India is definitely one of them, having been compelled to withhold export offers in two instances in the recent past. One was over October-December, 2023 and again from May-till date in August, 2024.
Secondly, the global scenario has been rather challenging even in the post-Covid era. Before the world could recoup from the pandemic, geo-political issues reared their head in the form of the Russia-Ukraine war (2022), Israel-Hamas war (2023), and the Red Sea crisis (2023). These events not only changed trade flows but drove up energy prices and inflation, led to tightening of interest rates, higher freights, delayed shipments, increased production costs in certain geographies (the EU), and eventually eroded purchasing power and steel demand globally.
Cheap imports pressure down pricing: Another major factor pressuring down Indian steel prices is the imports influx of hot rolled coils and plates, especially from Vietnam and China, but more so from the former. Capacity addition by Southeast Asian economies is also forcing many, especially Vietnam, to eye exports aggressively. However, the hearsay is, many Chinese-owned mills in Vietnam are also selling steel to India by proxy at throwaway prices.
Over January-June, 2024, imports touched almost 4 mnt, up 48% y-o-y from 2.70 mnt in the same period in 2023. If this pace is sustained, then possibly volumes by year-end will cross 2023's figure of 7.15 mnt.
The price gap between domestic and landed imports has increased in the latter's favour. Landed prices of HRC imports from Vietnam in July were at INR 49,150/t (586/t) and China, at INR 51,226/t ($610/t). On the other hand, domestic India HRC prices in July averaged higher at INR 52,300/t ($623/t) with mills desperately trying to close the gap. August prices are languishing at INR 51,200/t ($610/t) levels.
Lower exports fail to support domestic prices: India's steel exports, failing to stand the fierce Chinese price competition, on the hand, are falling y-o-y. January-June, 2024 figures are already down 6% y-o-y at 4.42 mnt (4.71 mnt). Certain factors are impacting exports. One, is the higher Chinese export allocations and rock-bottom pricing. Two, Indian mills callibrated domestic production through maintenance shutdowns and production cuts to attune supply to the dull demand trend. Data reveals, from January, finished steel consumption in India consistently lagged behind crude steel production. Three, EU quotas were exhausted for many items creating a lull in such cargoes.
Historically, since around 15% of finished production is allocated for export, the same has a bearing on domestic prices. But the current scenario is failing to support domestic prices, leading to a meltdown.
Plus, domestically, the situation is compounded by an influx of additional supplies from major Indian steel producers like JSPL and NMDC, further aggravating the supply-demand imbalance. This surplus, combined with the global factors at play, has exerted substantial downward pressure on steel prices in India, creating a challenging landscape for the industry.
Sliding raw materials drag down production costs: A raw material price slide is also not helping Indian mills. The Odisha iron ore Fe62% fines index hit almost a one-year low at INR 4,538/t ($54/t) in July, 2024. The Premium HCC from Australia, CNF Paradip, is at $255/t, falling off from its peak of $617/t seen in March 2022. Looking at the recent past, prices have gone sub-$300/t levels since March 2024.
Since iron ore and coking coal comprise around 70% of the production cost, this slide is naturally having a downward pressure on prices and thus margins too.
"But it is worth noting that just three years ago, mills enjoyed better margins when coking coal was at around $100/t, compared to the current $250/t," said a source.
Outlook
As per a leading global steel mill, demand forecast for 2024 is rather measured. Global ex-China apparent steel consumption (ASC) growth forecast has been revised down to 2.5-3% while that in the EU/US is likely to be slightly higher in H2CY'24 y-o-y. China's continued weakness in real estate and slower growth in infra spending can keep demand in the range of -1.0% to +1%.
India's outlook is positive though. It is expected to end the year with a strong ASC growth of 7.5-9.5% though there would be moments of sluggishness amid its own challenges.
Source:BigMint
