Domestic Steel Price To Correct In The Coming Months
DSIJ Intelligence / 31 Aug 2012
Steel companies in China are facing one of their worst periods in the last two years. Most of the steel firms are presently under margin pressure due to surplus production, decline in steel consumption and a continuous fall in the steel prices. A slowdown in demand in the first half of the year resulted in an inventory pile-up with most of the steel firms. These inventories were then sold at a loss or at lower prices which resulted in lower profitability. The Chinese domestic HRC price in June was USD 545-550 per tonne which has corrected to USD 530 to 535 per tonne in the month of August 2012. There are reports in the Chinese media that the steel prices have declined to their lowest levels since 2009.
| HRC Steel Price | ||
|---|---|---|
| Months | China Domestic HRC Prices (USD Per Tonne) | Indian HRC Prices (Rs Per Tonne) |
| Jan | 570-580 | 39,000 |
| Jul | 260-570 | 38,500 |
| Aug | 545-550 | 38,300 |
The downward pricing pressure on steel is being driven by the country’s slower industrial production growth of below 10 per cent since April this year, compared with 13.9 per cent in 2011. However, in contrast to the falling demand, Chinese crude steel production reached a record of 61.69 million tonnes in July 2012, 2.5 per cent higher than the previous month and 4 per cent higher than in July 2011, according to data released by the World Steel Organisation.
Till last month the Chinese steel prices were trading above the import price mainly because of the rupee depreciation. However, this week, China Steel, a major steel producer based in Taiwan, announced a lowering of the steel prices by a further 6 per cent after which the steel prices have corrected further and are trading near the import parity prices. This means that if the steel prices correct further from here it will pose a major threat to the domestic players as the import price of steel will become cheaper than that of the domestic one. And to compete with them, the domestic players will have to go for a price cut of Rs 1,000-1,500 per tonne. A weak economic scenario, the revival of monsoon and now the falling Chinese steel prices are indicating a downward pressure on the steel prices.
Moreover, India’s largest iron ore producer and supplier, NMDC, recently announced 8-13 per cent hike in the iron ore prices at a time when most of the commodity prices are falling in the global markets. The domestic iron ore prices are now available at 30 per cent higher than the international prices. The major concern with the falling steel prices are higher freight cost and rising iron ore prices which will hurt the margins, thus building a double whammy impact for the domestic steel players.
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