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After a relentless rally for two years, steel prices are all set for a correction, Crisil said Monday, adding that the metal may fall to 60,000 per tonne by the end of current fiscal.

Steel prices have scaled a peak of 76,000 per tonne last month, which is 95% over March 2020 levels, when Covid-19 was declared a pandemic.

"Domestic steel prices are showing signs of fatigue following supply disruptions, decarbonisation measures globally, especially in China and geopolitical risks stemming from the Russia-Ukraine war, which has driven up raw material costs," Crisil said in a report.

"While prices have defied correction predictions because of continuing uncertainties, some moderation is on the cards with the onset of monsoon," the report noted.

Heightened geopolitical risks have limited the correction in prices, which had started to moderate early this year. But the Russia-Ukraine conflict, which began in late February, cranked it up again on supply-disruption fears. In Europe and the US, where the impact was greater, prices crossed the $1,600 per tonne mark.

"Then rising input costs added to the pain. Prices of international coking coal (f.o.b. Australia) rose 47% to $670 per tonne in three weeks from $455 per tonne in late February, due to the flooding of mines amid high demand from countries that traditionally imported from Russia. While coking coal prices have eased from their peaks, they continue to get support from strong demand at $500 per tonne," the report added.

“Despite a moderation in demand in January-March, steel prices have inched up owing to higher input costs and buoyant exports. Also, domestic supply stayed tight, eliminating the differential between global landed and domestic prices, which was once nearly 15,000 per tonne. On the other hand, export realization premiums have surged to $75 per tonne in early May," says Hetal Gandhi, Director, CRISIL Research.

While steel mills made the best use of elevated global prices, domestic demand began to waver, according to the report. "Soaring construction costs, and multiple price hikes by makers of automobiles, consumer appliances and durables drove down demand in the last quarter of fiscal 2022."

"In the first quarter of the current fiscal, domestic demand could see an optical recovery because of a low-base effect, but consumer sentiment remains sluggish with higher input costs leading to postponement of purchases and construction decisions," it said.

While exports to these markets from India will remain high in the first quarter of this fiscal, retreating prices will narrow the arbitrage for domestic mills. To sum up, exports out of India will remain range bound at 13-14 million tonne this fiscal on the back of revised quota to Europe and supply constraints in south-east Asia, it said

Further pressure on supply and raw material value chains, and escalation of the Russia- Ukraine conflict will bear watching, Crisil said.

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