Weak demand, oversupply and price decline to hit Indian steel industry: Ind-Ra

• Monday, July 27, 2020
• Source:ferro-alloys.com

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• Keywords:Weak demand, oversupply, price decline, Indian steel industry

[Ferro-Alloys.com] Indian steel industry’s gross spreads per tonne for both hot rolled coil (HRC) and rebar is expected to fall in the second quarter of FY21 with a further fall in steel prices due to oversupply, said India Ratings and Research in a sector report.

 

“As domestic production will gradually increase with the easing of lockdown restrictions, along with no corresponding increase in steel demand, domestic gross spreads per tonne for HRC and rebar are likely to fall for steel companies,” Ind-Ra said. 

 

Large steel players were operational at lower utilisation levels during the lockdown and due to a dull domestic demand, companies increased steel exports. 

 

“Timely policy support from the government would help bolster the demand for the domestic steel sector,” the report said. 

 

Both HRC and rebar prices were down 3% and 4% month-on-month, respectively in mid-June 2020, and rebar spreads corrected more than HRC spreads due to a sharper fall in demand than available supply. 

 

“Rebar spreads are likely to be less impacted over the near term up to end-FY21 compared to HRC due to a likely better demand pick-up, leading to a price increase backed by the expected implementation of government spending on infrastructure,” the report said. 

 

In May 2020, steel prices temporarily rose although higher inventories were available with steel players. This was due to logistical constraints and man-power availability issues, resulting in limited supply to end-use industries which gradually re-opened post relaxations in the lockdown. 

 

As per Ind-Ra, domestic iron ore prices in mid-June 2020 were 31% lower than mid-March 2020 prices, prior to the lockdown in India. The domestic prices have sharply corrected. 

 

“Most players stocked up on iron ore inventory for four to six months by end-March 2020, due to the anticipated risk of limited iron ore availability because of the uncertainty over the timely completion of iron ore auctions by end-March 2020”. 

 

Small and mid-sized steel players have been impacted more and are likely to face tight liquidity due to delays in the receipt of receivables and payment of fixed charges towards labour and electricity. 

 

Most steel producers have raised a plea for the waiver of fixed demand charges and surcharges on electricity bills, till the situation is favourable for the smooth running of steel plants. 

 

Source: S&G Platts Global

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