Indian Steel companies have announced an increase in the price of Hot rolled coils by Rs 500 to Rs 750 a tonne in the month of March. The steel prices have shown a positive growth trend in the last few months post-November in line with international trends. The HRC prices started falling abruptly touching a base low of Rs 32500 a tonne in the month of November but started showing uptrend thereafter and hitting Rs 37000 mark. The steel demand growth remained low at 3.8 percent in the initial ten months of this fiscal compared to 7.8 percent for the same period in the previous fiscal.
Domestic steel prices are trading at a discount of 7 percent to the landed cost from China and at 3 percent to the landed cost of Japan. Although this provides enough scope for the hike in steel prices but the growing number of coronavirus cases may hamper the steel consumption in the country, thereby putting pressure on the steel prices. The Covid-19 outbreak in the country is threatening to cause a supply-demand imbalance which will lead to an inventory pileup.
The demand-supply imbalance will get worse with the virus spreading across the world especially in large steel-producing nations, such as Japan, South Korea, India, and the US.
China is the major producer and accounts for consumption of more than half of global steel produced. Thus, the tenure or the severity of the outbreak will surely determine the magnitude of global supply disruptions in the coming days. The local demand in China has reduced drastically leading to high levels of inventory, thereby putting pressure on global steel prices and restricting domestic price hike.
But, India is well protected from the cheap imports from China because of the anti-dumping duties imposed on China in February 2016. Moreover, logistics and transport barriers restrict exports from China. However, FTA countries like Japan and South Korea pose threat pertaining to steel prices and domestic balance.
The global outbreak of the virus won’t hurt India’s exports much, as India only exports 8 percent of the total steel produced.
Domestic virus outbreak will decline the consumption, halt the price uptrend and impart pressure for a price cut in the coming months, keeping in mind the macroeconomic headwinds.
