Coronavirus outbreak expected to halt domestic steel price rally

Though the domestic steel industry is poised for a minor price hike in March, continued weak demand amid supply chain disruption because of the coronavirus outbreak is expected to keep prices under pressure.

Chinese hot-rolled coil prices have already corrected by Rs 1,000 per tonne in the past few days to Rs 39,000 per tonne. Prices had peaked to about Rs 48,000 per tonne in October 2018.

“We are looking at a price hike of Rs 500-750 per tonne from March 1, as global coking coal prices are up and we are about 10 per cent behind compared to March 2019. So, there is room to push up prices,” said Jayant Acharya, director (commercial and marketing) at JSW Steel. 

Domestic steel producers have continuously increased prices since November.

“Producers want to raise prices for March, but our sense is that there will be a roll over or eventually a rollback of price hike as the market is not in a position to take price increase at this juncture,” said a Mumbai-based trader, speaking on the condition of anonymity. The spread of coronavirus has also halted Chinese imports of intermediate materials used by domestic auto players and white goods manufacturers, impacting supply.

“Automakers are dependent on China for certain components. These shipments have not been coming because of coronavirus. This is the situation with white goods category as well. So, the demand for intermediate products is also affected,” said Nikunj Turakhia, president of Steel Users Federation of India (SUFI).

Steel imports, which were already weak because of the economic slowdown, have dried up completely since the virus outbreak in December, said industry officials.

According to data from the Joint Plant Committee (JPC), India imported 5.07 million tonnes of steel in the April-November period, down 5.3 per cent from the corresponding period a year ago. The share of China in total finished steel imports declined to 18 per cent, with volumes slipping by 19 per cent, according to the data.

Meanwhile, domestic iron ore prices have also dropped because of a decline in imports from China.

According to an NMDC investor presentation, the outbreak has led to a drop in iron ore prices to $83 a tonne since the beginning of the month. Analysts at Emkay Research expect iron ore prices in the international market to remain weak as production in China is unlikely to rebound soon. Iron ore and coking coal are two key raw materials used in the making of steel.
Along with a drop in domestic steel demand, inventories of the alloy, too, declined on a year-on-year basis.

“It is the lower rate of growth of steel production that is showing [a] fall in inventory despite a dull demand scenario,” said Sushim Banerjee, director general at the Institute for Steel Development and Growth. 

At the beginning of February, domestic steel inventory was 400,000 tonnes lower than a year ago, and about 200,000 tonnes down from beginning of the financial year. “The rate of growth of production in [financial year 2019-20, or FY20] was 1-2 per cent as against 4-5 per cent in FY19,” informed Banerjee.

Industry officials said the domestic demand scenario would be clear by mid-March as government spending on infra­structure projects is expected to pick up.

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