Pains suffered by the Indian Steel Industry during the Pandemic.

In April and May, covid-19 crushed domestic industrial and consumer activity. The hit on India’s biggest steel mills, which make up 65% of the country’s annual output of about 110 Million MT, was calamitous.

The industry has been left standing still. The cost of standing still has been very high.

During the pandemic, the mills’ massive blast furnaces continued to burn but made less than a third of pre-covid-19 levels of production. Why keep the blast furnaces burning for so little output? Because closure and reopening can take up to 12 weeks; the process is complex; and maintenance costs are high. This remains the nuclear option for steel makers.

In short, India’s mills continued to bear high fixed costs: firing furnaces but without making much steel. Big integrated mills posses the manufacturing and marketing agility, and capital base, to survive, with bruises. Smaller mills, which account for about a third of national output, lack the strengths to survive a trough, and many have capitulated.

Indian Steel Giant JSW Group Pledges To Cut Down $400 Million Import Bill From China To Zero In Two Years

Stating that the unprovoked attack by the Chinese on Indian soil and soldiers has been a huge “wake up” call, JSW Group’s Parth Jindal on Thursday announced that his company has pledged to bring down $400 million import bill from China to zero in two years.

“The unprovoked attack by the Chinese on Indian soil on our brave jawaans has been a huge wake up call and a clarion call for action – we JSW Group have a net import of $400mn from China annually and we pledge to bring this down to zero in the next 24 months #BoycottChina,” Jindal tweeted.

The announcement came amid nationwide outrage against China after 20 Indian soldiers were killed in a violent face-off in Ladakh’s Galwan valley with Chinese troops when they attempted to unilaterally change the status quo during the de-escalation.

Domestic steel players raise prices amid absence of green shoots

Domestic steel industry has been continuously raising product prices since November despite the absence of green shoots. There are no strong demand indicators, or green shoots, at all which can keep these price hikes sustainable. Demand from infrastructure is still to pick up and auto sector continues to be weak.

Domestic steel producers have raised product prices by about Rs 2,000 per tonne for February. The February price hike is also in anticipation of a demand pick up that stockiest have stocked their yards. There is no on-ground demand so far. Higher raw material costs, increased global steel prices and expectations of a demand pick up have been the only reasons for domestic steel producers to raise prices every month since November so far.

Currently, hot-rolled prices are ruling at Rs 40,000 per tonne in the domestic market, up from the 15-month low of Rs 33,500 per tonne rate noted in mid-2019. However, the current price point is far lower than Rs 47,000 per tonne rate for hot-rolled noted in October 2018.

Steel prices rise as demand perks up

Responding to cost pressure and greater demand, domestic steel producers have raised prices by Rs 1,000-1,500 a tonne across products for January. Iron ore miners have increased prices by Rs 600 per tonne and so this increases the cost of production by Rs 1,000 a tonne.

With this, domestic steel players have raised prices for the fourth consecutive month in a market in which consumption is expected to pick up after the government announced a mega push for infrastructure projects. Stock prices of all steel firms were up on Thursday in anticipation of rise in demand for the commodity, mainly from the infrastruct­u­re se­ctor, in coming months.

During October-December, long product producers such as JSPL and SAIL have recorded strong production figures, indicating a demand pick-up in infrastructure. JSPL recorded 30 per cent sales growth in the December quarter at 1.66 million tonnes compared with the same period in the previous financial year.

Steel prices recover, but no signs of increment in demand.

Steel firms have hiked domestic prices following a rise in international rates. In fact, domestic hot rolled coil steel prices have risen by about 3% in the past two months. Prices of bars have also increased by as much.
Demand growth for steel slipped into negative territory in the first two months of Q3 FY20, recording a fall of about 1.8% year-on-year. It has steadily decelerated throughout the current fiscal, declining from 6.9% YoY in Q1 FY20 to 3.1% YoY in Q2 FY20,” it added.
Further, steel consumers such as auto and infrastructure, continue to reel under a slowdown. There are no visible signs yet of demand revival in auto and capital goods sectors.
One positive for the steel sector, however, is that input costs are on the decline. Prices of raw materials iron and coking coal have slipped. Iron ore, for instance, dropped by 15-17% over the past four months, while coking coal prices fell about 32% in the last six months. This should help alleviate the pressure on operating margins.

Steel prices on the verge of recovery

Domestic steel prices could increase by over Rs 1,000 per tonne in December, the first rise in six months, propped up by a strong revival in international prices and improvement in demand from infrastructure and housing sectors.

Signs of improvement in demand are being seen since November and this has given scope for price correction.Major steel players are looking at a moderate price recovery of Rs 1,000-1,500 per tonne in December.

An increase in price will improve the prospects of medium and large steel firms, including Tata Steel, Tata Steel BSL, JSW Steel, Essar Steel, Steel Authority of India and JSPL. Prices have been falling since May due to sluggish demand from infrastructure and construction sectors, and drop in orders from the slowdown-hit auto sector.From a high of Rs 44,000 per tonne, Hot Rolled Coils prices had plunged to, what industry executives termed as “unsustainable”, levels of Rs 34,000 per tonne.

Tata Steel eyes better H2FY20 on the back of tax benefits, festive season

The government’s proposed tax cuts combined with an uptick in consumption during the festive season would improve the demand situation in the second half of the fiscal year 2019-2020, said TV Narendran, MD of Tata Steel.

The corporate tax rate decision was very positive and in line with what the industry has been talking about, he said.

“It helps companies like us who are investing a lot currently in India because we also have the pressure to deleverage. So actions like this help us in that context,” Narendran added.

Besides tax benefits and festive season, Narendran said the government’s spending on infrastructure will also boost earnings. “We also hope that the infrastructure spend that the government has been talking about will start translating into money flows on the ground so that should help us,” he said.

Compared to South-East Asia, the Middle East or Europe, India has been a big price setter as the country has been exporting a fair amount of steel, said Narendran.

“So if things pick up in India, we believe that steel prices globally can also be positively impacted – microeconomic activity, various governments are taking different steps and we hope we will see the impact of those actions across the world,” he further mentioned.

Tata Steel Q1 Net Profit Crashes.

With global steel prices nosediving while production costs rise, Tata Steel, the country’s largest private steel maker, reported net profit of Rs. 702 crore in the June 2019 quarter, falling 63% year-on-year. The company had reported consolidated net profit of Rs. 1934 crore in the year-ago period. Consolidated revenue from operations remained flat in the quarter, at Rs. 35,382.16 crore.

For India, the company reported standalone net profit of Rs. 1567 crore, 15% lower than the Rs. 1856 crore it reported last year. In India, steel prices declined as subdued economic activity, seasonal slowdown and liquidity issues weighed on domestic consumption. Higher net imports further exacerbated the demand supply balance.

The company reported production of 7.15 MMT in the quarter, with India accounting for 4.5 MMT, higher than the 6.45 MMT and 3.64 MMT respectively reported in the same period last year. EBIDTA in its India business fell 4.71% to Rs. 5117 crore in the quarter, from Rs. 5370 crore in Q1FY19. EBITDA/tonne of steel fell to 12,908 from 16,068 in the quarter, while for the consolidated figures crashed from Rs. 11,740 crore to Rs. 8725 crore.

Tata Steel completes acquisition of Bhushan Energy Ltd.

Tata Steel on Saturday announced it had completed the acquisition of debt-ridden Bhushan Energy Ltd.

The announcement came after the National Company Law Tribunal (NCLT) approved the resolution plan of Tata Steel to acquire Bhushan Energy for around Rs.800 crore.

Pursuant to the acquisition, the company holds 99.99% of the total equity share capital of BEL. Bhushan Energy was a subsidiary of Bhushan Steel Ltd, which was also taken over by Tata Steel last year in May, and later renamed as Tata Steel BSL Ltd.

Tata Steel had offered Rs.35,200 crore in cash to acquire Bhushan Steel, besides Rs.1,200 crore to creditors and convert the remaining debt owed to banks to equity.Incorporated in 2005, Bhushan Energy is based in Dhenkanal, Odisha.

STEEL PRICES UNDER IMMENSE PRESSURE

Despite the mills’ best efforts, steel prices have been unable to gain much traction so far in 2019. Price increase announcements of $40/ton in January and February yielded partial and apparently temporary gains for steelmakers. The prices of all flat-rolled steel products are now well below where they were at the beginning of the year, which may be good news for fabricators and other steel users, but is not-so-good news for steel producers and distributors that have seen their margins and the value of their inventories erode.

SMU tracks steel prices each week and publishes its SMU Price Momentum Indicator, which signals whether steel prices are more likely to move up, down, or sideways in the coming 30 days. Currently, SMU’s market momentum is lower for hot-rolled and plate products and neutral for cold-rolled and galvanized.

Mill price increases cannot succeed without the cooperation of distributors. They are on the front lines in the spot market, and it’s their day-to-day decisions about whether to deal or hold the line that ultimately translate into price changes. SMU’s latest survey data suggests that support for higher prices is waning among service centers. About 90 percent of service center executives responding to SMU’s latest poll said they are having difficulty passing along higher prices to their customers.

In its twice-monthly survey, SMU asks manufacturers if they are seeing higher prices from service centers. In mid-March, around 40 percent of respondents said their service center suppliers were seeking higher prices. In the latest data, that figure had declined to 17 percent.