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 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.

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.

JSW Steel profits fall drastically due to weak demand.

JSW Steel has registered 56.4% fall in its Q1 of FY19-20 (April-June) consolidated net profit at Rs 1,028 crore on the back of lower sales volumes due to subdued steel demand. The company had reported profit of Rs 2,366 crore in the same period last fiscal.

Even though the company maintained its annual guidance in production, which was up three percent, its sales were down by two percent. Revenue of the company declined 3.4 percent at Rs 19,812 crore against Rs 20,519 crore.

The demand slowdown has led to higher inventory levels. While overall, the inventory was at 1.2 million tons, up 3 lakh tons from a year ago, the finished goods inventory increased to 25 days, from the otherwise 20 days.

But the company is hopeful of demand picking up in the coming quarters on the back of higher Government spending on infrastructure.

Sales improve in the first quarter: Tata Steel

Tata Steel India said its sales in the first quarter of FY20 improved 16% to 3.87 million tonne over the previous year even as liquidity issues and rural stress that impacted domestic consumption, primarily with consolidation of Tata Steel BSL Ltd. for the full quarter.

Production went up 20 per cent to 4.37 million MT in the Q1 against 3.64 million MT with consolidation of Tata Steel BSL for the full quarter due to higher capacity utilisation at both Tata Steel standalone and Tata Steel BSL Ltd.

On the other hand, steel prices across many geographies declined in the first quarter. Input costs too have spiked with a sharp rise in iron ore prices due to supply disruptions and elevated coking coal costs. As a result, market spreads for steel producers globally have been affected.

India’s ambitions on growing steel productions.

Reportedly, Economic Survey 2018-19 has estimated India’s steel output to hit 128.6 million tonne by 2021 and reach 140 million tonne by 2023, on the back of investments in infrastructure, construction and automobile sectors.

Press Trust of India says “With huge investments in infrastructure, construction and automobile sector, steel demand and corresponding consumption is growing at an average of 7.4 per cent. This will lead steel production to go up to 255 million tonnes by 2030 and per capita steel consumption to 160 kg.”

Crude steel production in 2018-19 stood at 106.56 million tonne, a growth of 3.3 percent over 103.13 million tonne in 2017-18. Currently, India’s per-capita consumption stands at only 69 kg, compared with the global average of 214 kg.

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.

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Spehrodization of High Carbon Steel Strips.

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Steel prices increasing rapidly.

Steel prices in India may go up for the third time in a month – a rare instance -as companies pass on the increase in iron ore rates.

According to sources, the third hike may take place on March 1. The increase will be of Rs 1,000 a ton, taking the total increase within a span of 30 days to Rs 2,750 a ton. The latest round will take price of hot rolled steel to Rs 44,200 a ton.

“Such an increase has rarely happened, it hasn’t taken place in the last eight years,” an industry official said.

Prices were hiked, by Rs 750 a ton, for the first time in the first week of February. The second increase, of Rs 1,000 a ton, came in the third week of the month.

The latest increase in steel prices comes after three consecutive months of softening rates in India, and the world over. Since November, prices had crashed, especially because of the China factor.

Demand in China, the world’s largest steel market, has softened since November, even though production has also been cut.

But an accident in a Brazilian iron ore mine owned by Vale SA, the world’s largest producer, pushed up prices of the raw material. According to reports, the accident in a dam will impact about 70 million tons of iron ore production.

This has led to an increase in steel prices in the global market.