The street has baked in a price cut for steel in month of July because on one hand Russia would be imposing an export duty from August and so the Russian steelmakers could start flooding the market with lot of steel and may also lower prices to bring down their inventories. On the other hand, there could be correction in Chinese steel prices and so price of steel in India could correct in line with that.
Moreover, there has been correction in export prices for India and that could reflect in lower price for steel. On the domestic front as well, India is entering into seasonally week months, which could put further pressure on steel prices. The secondary steel makers are sitting on higher inventories.
Meanwhile, the consumption in the domestic market is also likely to be postponed due to second COVID-19 wave and anticipation of a third wave.
Throwing more light on the steel price trajectory, Amit Dixit of Edelweiss Institutional Equities said if one were to look at the correction in Indian export steel prices it has been a meaningful one, at almost $70/tonne, which is about 7 percent week on week. So, the current export steel prices for India stand at $920/tonne, which is the lowest in the region.
The correction in prices was mainly because Chinese steel prices have seen fair bit of correction and could stabilise $940-945/tonne and Russia too is likely to export steel in July, said Dixit.
The primary reason for correction of steel prices in India has been because of weakness in domestic demand. Most of the flat players were directing their sales in export market but now they would have to compete with Russia and China, and since they need to push out sales volumes, the prices have dropped, Moreover, the domestic demand still remains tepid, Dixit told CNBC-TV18.
However, for the year as the whole, Dixit said the prices would remain healthy at around Rs 59000 per tonne for HRC despite corrections in the near term.
The house is upbeat on Tata Steel with a target price of Rs 1300 mainly because of the turnaround in their Europe business, said Dixit.
For the entire interview, watch video.