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Steelmakers Eke Out A Hike But Will It Sustain?

The price hike comes amid falling international prices.



An employee walks across packaged coils of steel in the tube mill. (Photographer: Vivek Prakash/Bloomberg)
An employee walks across packaged coils of steel in the tube mill. (Photographer: Vivek Prakash/Bloomberg)

Steelmakers increased prices of the alloy in the past month as raw material costs rose. But they may find it difficult to sustain as imports have turned cheaper and monsoon, a seasonally weak period for construction, will kick off soon.

Prices of flat steel and hot-rolled coil increased by Rs 750-1,300 a tonne across categories since May.

That came as iron ore turned costlier in India. NMDC Ltd., the nation’s largest producer of the steelmaking raw material, increased prices by most in seven months in May as inventory depleted and regional players hiked rates.

International prices have remained high after Brazil’s Vale SA, the world’s largest producer of iron ore, stopped operations at its Brucutu iron ore mine after a local court suspended a decision that allowed the miner to resume operations. Many other global producers, too, slashed their iron ore targets for the year.

But iron ore prices now have corrected by more than a percent in June on signs of revival in shipments, forecasts for a weaker second half and souring sentiment in China. Morgan Stanley said the commodity was nearing peak levels and Citigroup Inc., that was bullish, signalled the rally had run its course.

JSW Steel Ltd.’s Joint Managing Director Seshagiri Rao expects iron ore prices to fall to $60-80 a tonne from $95-100 by the second half of the calendar year due to improving supplies and lack of change in the demand-supply dynamics in the steel industry.

Fears Of Higher Imports

With Indian prices now trading at premium to Chinese exports prices, Indian steelmakers will now have to worry about higher imports and their dwindling share in exports to other markets.

India remained a net importer of steel in 2018-19 even though inbound shipments fell to 0.2 million tonnes from 3 million tonnes in the previous year.

JSW Steel, whose exports tumbled 34 percent in FY19, remains cautious. Rao suggested a 25 percent suo motu duty to avoid higher steel imports, a structure already in place in countries like the U.S., Turkey and Canada.

The U.S. on May 10 imposed a 25 percent tariff on Chinese steel and aluminium imports worth $200 billion. Following this move, various countries exporting steel to the U.S. are dumping the commodity in other global markets, including India.

Rakesh Arora of Go India Advisors, however, expects steel prices to remain range-bound due to dealers paring inventory amid ongoing trade concerns and the seasonally weak monsoon period.