Domestic steel prices in India have fallen to a 34-month low in October due to a persistent demand slump from automobile and construction industries.
India’s steel demand grew at 5% in the first half of this fiscal, lower than the 7.5% and 7.9% growth seen in FY2019 and FY2018 respectively. Also, with prices of Chinese steel having declined, Indian manufacturers are finding it hard to sell their products globally.
Prices of domestic hot-rolled coil (HRC) fell to ₹34,250 per tonne in the second week of October, below the threshold of ₹34,719 per tonne ($489 per tonne) which invites an anti-dumping duty on imports. Because of this, the ₹34,719 per tonne has acted as a natural floor price for hot-rolled coil. However, prices have witnessed a steep correction in the last few months owing to weakening of domestic demand conditions, a note by credit ratings agency ICRA has said.
“India’s HRC prices fell to a 34-month low level of Rs. 34,250/MT in October second week and have fallen by 16% in the current fiscal following lacklustre demand from the key end-user industries. Despite the anti-dumping duty setting a floor to domestic HRC prices, the fact that a series of price cuts undertaken by the domestic steelmakers have taken Indian steel prices lower than that floor points to heightened concerns about demand conditions," Jayanta Roy, Senior Vice-President & Group Head, Corporate Sector Ratings, ICRA, said in the note.
ICRA further noted that the difference between domestic and imported HRC prices has widened in recent months with the domestic prices trading at a discount of 13% to landed prices. China’s export HRC prices were hovering at around $420 per tonne at the time of imposition of the anti-dumping duty, a level slightly lower than the current Chinese HRC price of about $430.
Demand conditions for steel in the local market have turned unfavourable in recent months. While the domestic steel consumption grew 6.9%, during Q1 FY20, it eased to 4% in Q2. Consumption growth contracted 0.2% in September 2019.
Moderation in steel demand is largely attributable to the weakness in automobile and construction sectors. Auto sector continued to witness a fall in sales, with sales de-growth during Q2 FY20 remaining higher at 18.1% than Q1 FY20 de-growth of 10.5%. Growth in the construction sector deteriorated to a seven-quarter low of 5.7% in Q1 FY20 from 9.6% in Q1 FY19.
With the widening of the gap between domestic and landed steel prices in recent months, Indian steelmakers have been focussing more on export markets, and steel exports have consequently increased in the last two months.
“India’s steel exports, which reported a de-growth of around 27% during Q1 FY20, grew by almost 34% in Q2 FY20, with exports growing by over 60% and 70% in August 2019 and September 2019 respectively. As a result, the excess of India’s steel imports over exports reduced to negligible levels in H1 FY20 as against 0.71 mt in Q1 FY2020. However, a 12% fall in Chinese export HRC prices since August 2019 could act as a fresh challenge for domestic steelmakers looking to augment exports amidst depressed domestic demand conditions," Roy added.