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Domestic steel producers may come under pricing pressure


Mumbai | Kolkata: The novel coronavirus outbreak is likely to put pressure on domestic steel prices in the near term and increase downside risks for the sector due to a drastic supply-demand imbalance causing an inventory pileup, two reports released on Thursday said.

The Covid-19 outbreak is likely to adversely impact Indian steel prices, which have been witnessing an upward trend since November, ratings agency ICRA said in a report, while India Ratings & Research (Ind-Ra) warned that the demandsupply imbalance created globally will get worse with the virus spreading across the world.

“Domestic steel prices are currently trading at a discount of 7 per cent to landed cost from China,” said Jayanta Roy, senior vice-president at ICRA. “While this provides a headroom to domestic steelmakers to increase steel prices, the rising number of confirmed cases (of Covid-19) in India could add pressure to steel prices in coming months.”

Consequently, ICRA has revised its estimate of domestic steel consumption growth to 4-5 per cent in 2020-21 against its November 2019 forecast of 6.5 per cent. The Ind-Ra report said Indian steel producers would face pricing pressures of about $30 per tonne, which could result in margin pressures of $25 per tonne.

“The China steel market would continue to witness a demand-supply imbalance, which could result in price fluctuations continuing over March-May 2020 in the range of $30-40 per tonne,” it said. With the virus spreading to other steel-producing nations such as Japan, South Korea, the US and India, “it would keep steel prices depressed even in H2 of 2020” and could create a larger surplus globally of around 40 million tonnes with a bump-up in China steel exports in the second half of 2020-21, Ind-Ra said.


Ajay Kedia, director at investment advisory company Kedia Advisory, said, “Steel prices on ICEX (Indian Commodity Exchange) dropped by about 140 points on Thursday, trading at ?30,910 (a tonne), and sentiments remain weak as the domestic steel industry continues to face weak demand amid supply chain disruption with the coronavirus expected to keep domestic steel prices under pressure.”

Some industry executives believe the novel coronavirus outbreak in China could throw up tremendous opportunities for India. “In fact, Indian steel mills have already started getting bookings for exports and are waiting for the prices to get better,” said Ranjan Dhar, chief marketing officer at ArcelorMittal Nippon Steel India. “We could build on this opportunity. (Look at) auto components, for example. If there is disruption happening out of China, could those components be supplied from India?”

He said there will be a lot of reluctance globally to source steel from China due to the virus outbreak. “That reluctance will give a demand rise for steel mills, including the ones from India,” Dhar said. “Initially, the industry was negative but in the last one week we see it is getting stable.” Seshagiri Rao, joint MD at JSW Steel, said the novel coronavirus outbreak has led to a fall in global steel prices with raw material prices going up since “China did not reduce production to the extent we all anticipated”.

He said demand is going up in India. “Sentimentally, there is an impact within and outside China. It will have an impact on stocking and restocking, as there is a huge retail market in India in addition to OEM market.”


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