India Ratings and Research (Ind-Ra) has published its February 2021 credit news digest on India’s steel sector. The report highlights the demand-supply scenario, price trends, imports/exports in both India and China, encompassing finished steel products (both flat and long), scrap, iron ore, coking coal and others, while also evaluating at the impact of end-user industries on India’s steel sector. The agency has also covered its recent rating actions.
Production: China’s crude steel output in
January 2021 is estimated to be at 90.2 million tonnes (MnT), around 1.15%
lower month on month (mom) but still largely on par with 2020 levels. There is
a speculation that China may revise tax rebates on certain steel to supplement
domestic steel supply and limit steel exports. India’s
crude steel output in January 2021 was high at around 10MnT, around 2% mom and
7% year on year (yoy) higher. As per the Ministry of Steel, the production of
finished steel in January 2021 was 1.8% mom and 4.1% yoy higher. The production
is likely to remain on par in the coming months. Secondary steel players
producing through the electric arc furnace and induction furnace routes shall
be encouraged to increase their output, given the reduction in import duty on
scrap amid high iron ore price levels.
Consumption: Chinese demand is likely to remain largely stable in 2021 with the steady recovery of its economy. India’s finished steel consumption in January 2021 stood at 9.97MnT, up 3% mom and 9% yoy, due to a robust demand and double-digit sales growth in auto, white and consumer durable goods that has led to the increased consumption. During April 2020-January 2021, the consumption was at 74.58MnT, down 13% yoy on account of the COVID-19 led disruptions over 1QFY21. The consumption is likely to remain strong in the near term, on back of a strong demand from the user industry.
Trade Data: India's finished steel exports in January 2021 were at 0.58MnT, down 6% mom and 16% yoy, with steelmakers focusing on domestic sales due to the robust demand. Ind-Ra expects exports to remain low over the balance 4QFY21, due to a continued strong domestic demand and robust realisations. However, India’s export volumes were at 8.84MnT, up 23% yoy due to during the lockdown in India. Conversely, India’s finished steel imports were around 2% mom and 8.3% yoy higher at 0.52MnT in January 2021. The reduction in import duties to 7.5% (from earlier 10%-12.5%) on all semi and finished alloy and non-alloy steel products should have a stabilising impact on domestic supplies and steel prices in the near term. India's finished steel imports over April 2020-January 2021 were at 3.79MnT, 37% lower yoy due to the COVID-19 disruptions. However, there is unlikely to be any spurt in imports due to domestic prices being at a discount to Chinese prices and China having limited steel surplus.
Steel Prices: Domestic hot rolled coil (HRC) prices have corrected by 3% in mid-February 2021 to INR53,750/MT, but are still 40% higher yoy. Domestic flat steel prices have reduced due to rising inventories with traders who are reluctant to procure steel at the high price levels since they have sufficient inventories, a slight moderation in demand from auto and pipe makers and a disparity between the mill price and trade price. The recent import duty reduction on steel scrap shall benefit secondary steel producers and the temporary suspension of countervailing and anti-dumping duties should bring about some stability to steel prices and supply.
Domestic rebar prices have also corrected due to the reduction in iron ore prices and increasing production by secondary steel producers. Domestic rebar prices in mid-February 2021 were at INR48,800/MT, 9% lower mom but 38% higher yoy. Furthermore, the recent budget announcements reducing the import duty on steel scrap shall encourage secondary steel producers to now increase the output since reliance on the current high cost iron ore has reduced. This would help improve rebar supply and put pressure on steel prices.
Chinese HRC prices rose 3% mom but were higher 34% yoy in mid-February 2021.
Spreads:HRC spreads have corrected by INR3,050 in mid-February 2021 when compared to end-December 2020’s around INR40,250. However, the spreads are still at elevated levels and are around 60% higher yoy. The correction in spreads can be attributed to the reduction in flat steel prices. The elevated level of steel spreads is likely to continue over 4QFY21. Domestic rebar spreads have also corrected due to the fall in rebar prices, but are still at elevated levels. Rebar spreads in mid-February 2021 were at INR32,230/MT, around INR3,200/MT mom lower.
Iron ore: NMDC Limited IND AAA’/Stablehas reduced prices by INR600/metric tonnes (MT; due to gradually improving iron ore supplies from Odisha amid lower steel prices. Guali and Jilling-Langalota are two additional auctioned mines that have been now allotted to Odisha Mining Corporation Limited with a combined capacity of 12MnT. The mines have started mining operations. Prices in mid-February 2021 were at INR4,210/MT, around 45% yoy higher. Global iron ore prices continued to increase in mid-February 2021 due to a continued robust Chinese demand and an expected reduction of supplies from Brazil. International iron ore prices were at USD203/MT (CNF India; Fe 64%, South Africa) in mid-February 2021, up 12% mom and 88% yoy. India, however, largely depends on domestic iron ore.
Coking Coal: Coking coal prices were at USD139/MT in January 2021, up 36% mom but down 20% yoy. The rising restocking demand and buyers concern over potential supply disruptions during Australia’s cyclone season are the key factors behind the price rise. Prices are expected to remain volatile but are unlikely to rise further sharply on account of the informal ban on coking coal imports from Australia by China which shall mitigate the increased demand from other importers. India's coking coal imports were at its highest at 5.74MT in January 2021, up 3% mom. This signifies the likely sustenance in the production levels of manufacturers using the blast furnace route. Indian importers have benefited from the China’s ban on the import of Australian coal, which has caused the excess supply to weigh in on prices.
India Pellets:India pellet prices (Ex-Raipur; 6-20mm, Fe 63%) were at INR11,550MT in mid-February 2021, down 5% mom but 72% higher yoy. Pellet prices have reduced in line with the reduction in iron ore prices. However, the price levels are still elevated and shall enable pellet producers to earn healthy margins, especially those with who are backward integrated. International pellet price was at USD184/MT in mid-February 2021, down 5% mom but up 66% yoy. Domestic steel players had previously taken the advantage of higher price levels in the international market and increased pellet exports. While Indian pellet export shipments have gradually reduced from the highs of May 2020, it improved to 0.9MT in January 2021 (December 2020: 0.55MT).
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