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New Delhi: In what may come as a relief to the infrastructure sector, domestic steel prices may see a 5-8% correction in January amid weak local demand and as local prices remain at a premium to import prices.

According to a sectoral analysis by Kotak Institutional Equities, amid weak domestic demand, local steel prices in the past 18 months have closely tracked export parity prices and that would result in this correction in January.

The correction would mean that steel prices may fall by a sharp 5000-6000 per tonne bringing the benchmark hot rolled coil (HRC) prices close to 65,000-66,000 per tonne mark from current levels of around 72,000 per tonne.

The expected cut in prices by steel companies in January will come on the back of HRC prices falling between 2,500 and 3000 per tonne or 4% in December. The cut will be a big relief as industries in small and medium sectors and other infrastructure players were seeing their margins shrink amid rising metal prices since late last year.

Prices of building blocks of industrialization-- steel, copper, aluminum and polymerson – on which millions of downstream industries/MSMEs are dependent upon remain 25-50 higher than their international counterparts. If prices fall from here, it would benefit all user industries, said Animesh Saxena, president of Federation of Indian Micro and Small & Medium Enterprises.

Domestic hot-rolled coil prices have risen from 58,000 per tonne in April 2021 to more than 72,000 per tonne now. It has been rising since the third quarter of last fiscal year with the first three months of 2021 seeing big gains on steel prices.

“Improved sentiments in China have led to a sharp recovery in iron ore and stabilized coking coal prices. Indian steel margins in 2HFY22E face a double whammy of declining steel prices and elevated costs," said the Kotak Institutional Equities report.

Chinese HRC steel prices remained range-bound within $770-790 per tonne after correcting 20% in November 2021 and are at early CY2021 levels. Stringent production curbs during 2HCY21 in China have offset demand weakness and kept steel inventory low. Steel prices in the US and Europe continue to soften with another 5-10% correction in December 2021.

“We note that domestic HRC prices are still at 3 per cent premium versus historic discount of 3-5 per cent. Further, export orders of Indian mills have dried up whereas domestic demand is yet to see any meaningful recovery after restocking in October 2021. Indian mills are now offering HRC for exports at US$750 per tonne FOB versus US$840 per tonne in November 2021," the report said.

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