Indian HRC Prices Hit 3-Yrs Low, Will it Drop Further?

Indian domestic Hot rolled coils (HRC) prices fell to their three-and-a-half year lows of around INR 34,000-35,000 per tonne (MT) in September, 2019 on ex-yard basis �" these levels were last seen during the time when MIP was imposed by Indian government in Februray 2016

In the month of October, mills rolled over their HRC prices. The festive month is usually a slow one in terms of steel sales. But, from a high of around INR 41,000 in May 2019, ex-Mumbai prices have followed a steady downward climb to settle at their present levels of around INR 34,500-35,000/MT in September-October. In fact, the September 2019 prices were a roll-over of August but they came with the bonus of a discount of INR 1,000-1,500/MT for buyers.

As per data received last by SteelMint, minus the 18% GST, ex-Delhi and ex-Mumbai prices were at INR 34,500-35,000/MT, while ex-Faridabad were assessed at INR 34,500-34,750/MT.

Reasons for the downslide?
The usual suspects behind the dull price trend are the lack of liquidity in the hands of the steel makers along with squeezed credit availability options, slow sales in the monsoon and festive seasons, apart from the overall tepid demand scenario, especially from user-industries like construction and automobiles.

Demand uptick round the corner?
But, have HRC prices scraped the bottom of the barrel as of now? Where are prices headed from here?

Key industry participants sound a bit positive that there will likely be an uptrend in demand post-the festive season (which makes the second half usually better than the first), which, in turn, will push up prices. But, they warn that this uptick will hinge on the basic factor of the spread between raw materials and HRC prices.

For instance, a source from a leading HRC producer in the country told SteelMint that the absolute price should not be considered here but the spread between raw materials and HRC prices and that the price levels seen in February-March should be reached once again from November onwards.

“Possibly an improvement in prices is round the corner because spread levels are low and the demand cycle will kick in post the festive season. The spread levels are already at the lowest at present. If the raw material prices remain steady, it is natural that HRC prices will go up from here. We were at a certain spread in January, at another level in February-March �" which was probably the normal spread required for any steel maker to have fair returns. And that level should be reached from November,” the source said.

However, the source insisted that the price uptick will depend on the raw materials price movement. He said: “Iron ore prices at present are quite steady in the USD 80-90/MT tonne range. Coal prices are also in the USD140-150/MT range. And it does not look like these will go down.

So, the spreads, at their current levels, are the lowest. Thus, HRC prices should again go back to their normal levels by the end of this quarter.”

The source added that the price are dependent on the demand cycle which generally kicks in after the festive season. “Therefore, from November, we should see an upward price movement, especially on the back of the various reforms introduced by the government and measures being taken to prop up investments. Once the demand cycle turns upward and the spread level sees improvement, HRC prices will automatically move up,” he insisted.

Speaking in the same vein and overall on steel prices, Seshagiri Rao, Joint Managing Director and Group CFO, JSW Steel, told SteelMint that prices are stabilising because iron ore prices have come down. “These (iron ore) are still ranging between USD95-100/tonne. Iron ore being at that price, and coking coal at USD140-150/tonne, we do not expect a big downside to steel. So, taking the raw material prices at their current levels and the second half being generally better than the first half, we expect prices to stabilise,” he informed.

But he cautioned that, at the same time, a lot of supply-side adjustments are happening in India as in Europe, indicating production cuts.

Steel Authority of India Chairman Anil Chaudhury too sounded upbeat. He told SteelMint: “We are selling more material than what we had been doing in the previous year. There has been a growth of 6% in steel consumption even in the current financial year so far. So I don’t feel there is any major slowdown within the country, because steel companies are still able to sell their materials in the market.”

He added: “But I am very optimistic and we may see prices stabilising and going up from the next month itself.”

But, he agreed, prices have been eroded. “For that, we have to be competitive. We have to cut down our costs in all possible ways,” he observed.

Exports-
With domestic prices having taken a beating, mills have been resorting to exports. As per port data maintained with SteelMint, Indian HRC bulk export shipments observed a sharp hike in September 2019. Indian bulk HRC export shipments were recorded at 615,000 MT in September 2019 against 510,000 MT in August 2019. Vietnam accounted for the largest share, at 33%, of Indian bulk HRC export shipments. It may be noted that bulk exports contribute about 70-75% of total export volumes.

Indian steel mills actively exported HRC to Far East Asia, Middle East, Nepal and Vietnam in terms of August shipments.

However, on a yearly premise, the same spiked by 37% in August 2019 as compared to 0.716 MnT in the same month of the preceding year.

During April-August, 2019 of the current fiscal, India’s finished steel exports stood at 2.46 MnT (alloy/stainless steel+non alloy), down a mere 7% compared to 2.64 MnT in the same time period of the previous fiscal.

Industry sources, however, insisted that exports are only coming back to their levels seen previously. “The country was exporting 8-9 million tonnes (MnT) per year overall and that’s what we are doing now, of which longs, in any case, are not a big share. If we compare the latest export figures to those a year earlier, there is not much difference. I don’t think there is any major spike in exports of late, these are coming back to their normal levels. In a country which manufactures 100 MnT-plus, 8-9% exports play is not abnormal,” a leading steel maker said.

~ by Madhumita Mookerji