Nickel Prices May Weigh On Margins Of Indian Stainless Steel Makers
The impact of higher nickel prices might not be felt in the near term, but the pain is expected to be felt over long term.
Margins of Indian stainless steel makers may come under pressure as prices of nickel, a key raw material, rise amid lower demand for finished products.
The price of nickel—the best-performing base metal so far this year—rose 46 percent in the last three months on the London Metal Exchange, according to Bloomberg data.
“Higher nickel prices would mean inventory gains but only for near term,” said Yash Doshi, research analyst at SBI Securities.
“The margin impact of higher prices of nickel, which forms more than 50 percent of overall raw material cost for stainless steel companies, would depend upon the producer’s ability to pass through this cost to the end consumers which could be challenging given the subdued environment,” he told BloombergQuint in an interview.
The impact of higher nickel prices might not be felt in the near term, but the pain is expected to be felt over long term, according to Doshi.
Nickel prices rose after Indonesia, the world’s largest producer of the commodity, said it will enforce a complete ban on exports from Jan. 1—two years earlier than planned. That created a deficit in global market, leaving buyers scouting for alternative sources of supply.
This, along with an inverted import duty structure, only adds to the woes of domestic stainless steel manufacturers like Jindal Stainless Ltd. and Jindal Stainless (Hisar) Ltd.
While imports of finished goods from countries which have free trade pacts with India are duty-free, local producers pay a 2.5 percent import duty on stainless steel scrap and ferro-nickel, according to a presentation by Jindal Stainless.