Domestic hot-rolled coil (HRC) steel prices, which fell around Rs 10,000 in the last one month, may fall further in the near term. The prices fell about 14 per cent since the announcement of imposition of export duty on steel and allied products.
As per a recent report by Motilal Oswal, Indian steel prices had corrected from the peak of Rs 75,000 per tonne to Rs 61,500 in the trade market. It is also expected that with the imposition of 15 per cent export duty and consequent crash in domestic steel prices, the automotive industry in India may negotiate hard to bring down the contracted price for 1Q FY23.
The report says there is likely to be another round of correction in steel prices in India in the next quarter as well.
According to a recent report by CRISIL, steel exports from India are expected to plunge by around 35 to 40 per cent to 10-12 million tonne this fiscal following the 15 per cent export duty imposed on several finished steel products. At the same time, exports of iron ore and pellets may also fall this fiscal, and may cause reduction in domestic prices.
As per the report, steel exports, which had reached a record high of 18.3 million tonne last fiscal, continues to see momentum because of the disruption caused by the ongoing Russia-Ukraine conflict. Russia is a key exporter of steel, coking coal and pig iron. In the near past, while steel firms enjoyed fat realisations overseas, domestic demand grew 11 per cent year-on-year, driving domestic prices to all-time highs. This led to soaring construction costs and multiple price hikes by makers of automobiles, consumer appliances and durables to pass on the increase, thereby tamping domestic demand. The hike in export duty was aimed at curbing this inflation.
“The duty-driven price correction will improve availability of steel in the domestic market as finished steel exports dwindle. This will directly impact India’s export volume in the current fiscal. Steelmakers will attempt to skirt the duties by bumping up exports of alloyed steel and billets, but that is unlikely to compensate for the loss of finished steel exports. For the record, the government also hiked the export duty on iron ore to 50 per cent and that on pellets to 45 per cent, alongside slashing the import duty on coking coal, pulverised coal injection (PCI) coal and coke to 0 per cent from 2.5 per cent,” pointed out Hetal Gandhi, director, CRISIL Research.
As per the CRISIL report, export duty imposition on steel and iron ore by the government was able to tame the uncapped rally in domestic steel prices. Steel prices (ex-factory) which averaged Rs 77,000 per tonne in April 2022 had already cooled off by Rs 4,000-5,000 per tonne in early May, in line with global prices. The duty imposition has driven prices down further, as current prices stand close to Rs 14,000-15,000 per tonne lower than the April peak. Further global steel prices have also corrected, with landed prices for (HRC) having fallen below domestic prices.
The CRISIL report further points out that the falling steel prices, in turn, have aided recovery in domestic demand in the flat segment. Auto production and construction activity picked up in June. With monsoon setting in, a seasonal moderation in demand is expected, which will put further downward pressure on steel prices.
Experts at CRISIL point out that correction in steel prices was already on the cards as global prices started correcting. The duty revisions have alleviated the uncertainties linked to global markets and set the tone for a quicker correction in the near term. As of mid-June, prices are already at Rs 62,000-64,000 per tonne and can be expected to trend below Rs 60,000 per tonne by the end of the fiscal.
The report observes that large integrated players with flat-steel based capacities export around 20 per cent of their output, while small and mid-sized ones are predominantly in the long steel segment, where exports are negligible. The CRISIL report further says low exports can result in a relatively higher contraction in operating margins of large players while it would be less pronounced for small-and-mid-sized players, especially with raw material cost pressures alleviated to an extent.