Domestic steel demand in India picked up mid-December 2019, and is expected to increase further in Q4 for the 2019-20 FY, on higher steel realisations, according to a report published by the India Ratings and Research (Ind-Ra) on Monday.
The gross spread for finished steel, the gap between realisation and input cost of raw material per tonne of steel, increased by upto Rs2,200/mt ($31) mid-December 2019, from the end of the previous quarter, the report stated.
Higher realisations clubbed with a simultaneous drop in coking coal prices in FY19 were major drivers for the rising spreads for steelmakers.
Imported coking coal prices in India were around 30pc lower in mid-December 2019 as compared to April 2019, contributing to an improvement in gross spreads.
This comes on the back of China’s Shandong province having to reduce coking coal consumption by 10pc during the nation’s 13th five-year plan period. The reduction should be 6.55mn mt in 2020, the first year of the five-year plan.
This will keep global coking coal prices at lower levels, which is likely to reflect in higher realisations in India.
Outlook
In India’s domestic steel market, there are opinions suggesting a possible disruption in iron ore supplies due to a delay in the auction of iron ore mines scheduled for March 2020. Steelmakers are eyeing an increase in production levels to capitalise on the improved gross spread before any possible disruption. Hence, higher production may result in higher inventory levels affecting prices.
The Indian government has also recently published a white paper which looks at how domestic steel players can be more cost competitive. Starting from April 1, 2020, India’s infrastructure investment is projected to grow by 43pc to total around Rs19.5tn ($272bn), compared with an estimated spending of Rs13.63tn in 2019-20.