Domestic steel prices continue to remain at a sharp discount compared to international steel prices, indicating that there is room for a further price hike, analysts said.
The global steel prices witnessed a significant rally in the second half of FY21, especially in the US and Europe. The HRC (hot-rolled coil) prices in the US have spiked to above $1,600 per tonne in May 2021 from the levels of around $550 per tonne in May 2020.
Meanwhile, the domestic steel prices HRC prices are around Rs 70,000-71,000 per tonne and Cold Rolled Coil (CRC) costs around Rs 83,000-84,000 per tonne.
“Domestic steel prices continue to remain at least at 15-20 percent discount to the international steel prices,” Analysts at Care Ratings said in a report.
Steel demand in India has weakened due to the localised lockdown after the second COVID-19 wave, weighing on prices. The consumption of finished steel continued to report a sequential fall for the fifth consecutive month ended May 2021.
While domestic demand weakened due to the localised lockdown demand from the export market remained robust. Export of finished steel jumped 30 percent in May over the previous month, according to the report.
“Localised lockdown has also slowed down construction activities. To offset the slowdown in domestic demand steel companies have increased exports during the month,” the rating agency said.
Share of export in total finished steel production increased up to 15 percent from 11 percent in the preceding month. Exports to Italy, Turkey, Spain, Hong Kong and Nepal from India have risen sharply in recent months due to a sharp rise in international steel prices.
Domestic demand for steel had picked up pace in the second half of FY21, however, the second wave of coronavirus has mildly hit demand from certain sectors.
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Analysts expect domestic demand to be lower in the Q1FY22 however in Q2 demand is expected to return with the unlocking of restrictions. The capacity utilisation rate of user industries will start to improve as more people get vaccinated and return to work in the coming months thereby pushing steel demand.
“Steel producers are likely to cover up the lost production in the subsequent months and therefore there is no change in our annual crude steel output forecast of 9-11 percent growth for FY22,” the report said.