Bombay:
Steel prices, which have been at a low ebb for the past two years, will finally be adjusted for the weak seasonality and could trade at around Rs 60,000/tonne by the end of the current fiscal year, down from the peak of Rs. 76,000/ton it scaled last month, a report says.
Prices remain elevated amid ongoing uncertainty over supply disruptions, decarbonization measures globally, especially in China, and geopolitical risks from the Russia-Ukraine war, which has pushed up commodity costs, Crisil said in a report Monday.
Price corrections are likely due to the onset of monsoons next month, which will ease demand as constructions will come to a halt, along with the likely lower premium domestic factories could get from exports, the report said.
According to Koustav Mazumdar, an associate director at the agency, the start of the weak demand season due to the monsoon and less lucrative exports means that domestic steel prices should begin to fall and will eventually rise to Rs 60,000/tonne in March 2023, a decline from the Rs 76,000/ton peak it reached in the past month, which will still be well above pre-pandemic levels.
Flat steel prices could rise 3-5 percent this fiscal year, after rising more than 50 percent in 2021-2022. Hetal Gandhi, a director of the agency, argued that despite a moderation in demand in January-March, steel prices rose on the back of higher input costs and strong exports.
Also, domestic supply remained tight, eliminating the gap between global land prices and domestic prices, which were once close to Rs 15,000/tonne.
On the other hand, export realization premiums rose to $75/ton in early May. While steel mills took full advantage of high world prices, domestic demand began to falter. Rising construction costs and multiple price increases by companies in the automotive, consumer equipment and durables sectors drove demand down in Q4FY22.
In Q1FY23, domestic demand could see an optical recovery due to a low base, but consumer confidence remains sluggish with higher input costs leading to delays in buying and building decisions.
Likewise, the increased prices and consequent inflationary pressures affected sentiment around the world, ultimately leading to a price correction. Since April, prices of hot rolled coils in Europe and the US have fallen more than 25 percent to $1,150-1,200/ton, from a peak of $1,600 in mid-March.
While domestic exports to these markets will remain high in the first quarter, falling prices will reduce arbitrage for domestic factories. In summary, exports will be limited to 13-14 million tons this fiscal year due to revised quotas to Europe and supply restrictions in Southeast Asia.
The agency sees no free fall, however, as a host of uncertainties will limit a free fall in domestic prices, which, however, are showing signs of fatigue after a relentless rally over the past two years as the monsoon season begins.
The report attributes the still solid prices to heightened geopolitical risks that have limited price corrections that started to moderate early this year.
However, the Russian invasion of Ukraine at the end of February pushed prices up again amid fears of supply disruption. In Europe and the US, where the impact was greater, prices crossed the $1,600/ton mark.
Then rising input costs added to the pain. International coking coal prices rose 47 percent in three weeks to $670/ton in three weeks, from $455/ton in late February, following the flooding of mines due to high demand from countries traditionally importing from Russia.
While coking coal prices have fallen from their peaks, they continue to be supported by strong demand at $500/ton. All this has kept domestic steel prices high. In April, they reached a record high of more than Rs 76,000/ton, which is 95 percent above the March 2020 level, when Covid-19 was declared a pandemic. PTI BEN ANU ANU