Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Steelmakers opine the impact of duty cut on steel imports will wane away in the medium-term amid increased government spending on infrastructure. But with Chinese HRC offered at 10pc discount to domestic prices, ICRA believes imports could weigh down steel prices in India.


In the budget for FY2021-22, the Indian government proposed to reduce import duties on steel products to a uniform rate of 7.5pc on all steel products. Earlier, there was a 10pc duty on long steel and 12.5pc on flat steel products. Market participants opinion on the short-term and medium-term price direction of domestic steel is divided following the budget announcement. 


Industry participants believe that reduction in steel prices due to duty cut in the short-term could be offset in the medium-term by boosted infrastructure spending by the government and the rising domestic demand could keep domestic steel prices buoyant. 


Countering this opinion, credit rating agency ICRA said in its report that in the short-term finished steel imports could turn more competitive against domestic prices putting downward pressure on the steelmakers. It estimates prices could drop up to 10pc. 


Steel imports

Steel imports from the Free Trade Agreement (FTA) countries like South Korea and Japan would stay unaffected. While imports, especially HRC from China and Vietnam would turn more competitive. With the possibility of imports being cheaper than the domestic steel, mills would need to realign their strategies in the short-term.


Ahead of the Chinese New Year holidays, domestic steel prices in China dropped by over 10pc in January, and steel inventories have piled up significantly at mills. Steel demand is muted amid traditional lull around holidays. Historically, in China winter-related production curbs last till March-end, post which temperature picks up and domestic construction demand turns bullish. Chinese HRC prices offers are heard at 10pc discount to domestic prices in India. With a delivery period of almost two months, domestic steel prices must drop by 10pc by March-end to stay competitive against imports. On contrary, Indian primary steelmakers are unwilling to cut prices citing high input costs. 


In Mumbai, HRC prices soared by 54pc in the July-December period, starting from Rs36,000-36,500/mt ($493-500/mt) ex-works. Prices hit as high as Rs58,000/mt ($796/mt) ex-works in early January, which has cooled-off amid sharp resistance from end-users to settle at Rs55,000-56,000/mt ex-works in early February.


Infra, energy projects to lift consumption

India’s steel consumption is expected to be boosted by 26pc higher government capital outlay for infrastructure, including a 175pc increase in capital allocation for metro rail infrastructure. Additionally, the government has allocated Rs180bn ($2.47bn) for expansion of public bus services and Rs2,870bn ($39.37bn) allocation to the Jal Jeevan Mission (Urban) scheme, and the expansion of city gas distribution network into 100 more districts would also boost steel pipe sales, stated the ICRA report.

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