Steel prices could drop to Rs 60,000 per tonne by March on weak seasonality: Crisil report

According to Koustav Mazumdar, an associate director with the agency, the onset of the weak demand season because of the monsoon and less-lucrative exports mean domestic steel prices should begin easing and ultimately move towards Rs 60,000 per tonne by March 2023, down from the Rs 76,000 per tonne peak it scaled in just last month, which will still be well above the pre-pandemic levels.

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Flat steel prices could rise 3-5 percent this fiscal year after surging over 50 percent in 2021-22. Hetal Gandhi, a director at the agency, reasoned that despite a moderation in demand in January-March, steel prices inched up owing to higher input costs and buoyant exports. Also, domestic supply stayed tight, eliminating the differential between global landed and domestic prices, which was once nearly Rs 15,000 per tonne.

On the other hand, export realization premia surged to USD75 per tonne in early May. While steel mills made the best use of elevated global prices, domestic demand began to waver. Soaring construction costs, and multiple price hikes by companies in the auto, consumer appliances and durables space drove down demand in Q4FY22. In Q1FY23, domestic demand could see an optical recovery due to low-base, but consumer sentiment remains sluggish with higher input costs leading to postponement of purchases and construction decisions.

Similarly, elevated prices and the resultant inflationary pressure impacted sentiment across the globe, eventually leading to a price correction. Since April, hot-rolled coil prices declined over 25 percent in Europe and the US to USD 1,150-1,200 per tonne from a peak of USD 1,600 in mid-March. While domestic exports to these markets will remain high in Q1, retreating prices will narrow the arbitrage for domestic mills. To sum up, exports will remain range bound at 13-14 million tonne this fiscal on the back of revised quota to Europe and supply constraints in Southeast Asia.

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However, the agency does not see a free fall as a myriad of uncertainties will limit a freefall in domestic prices, which though are showing signs of fatigue after a relentless rally over the past two years as the monsoon season sets in. The report attributes the still firm prices to the heightened geopolitical risks that have limited the price corrections, which started moderating early this year.

However, the Russian invasion of Ukraine in late February, cranked the prices up again on supply-disruption fears. In Europe and the US, where the impact was greater, prices crossed the USD1,600 per tonne-mark. Then rising input costs added to the pain. Prices of international coking coal rose 47 percent to USD670/ per tonne in three weeks from USD455 per tonne in late February, due to the flooding of mines amid high demand from countries that traditionally imported from Russia.

While coking coal prices have eased from their peaks, they continue to get support from strong demand at USD500 per tonne. All this has kept domestic steel prices elevated. In April, they hit an all-time high of over Rs 76,000 per tonne, which is 95 percent over March 2020 levels, when Covid-19 was declared a pandemic.

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