Domestic steel prices jump, but there are risks

“We note that hot-rolled coil (HRC) prices increased 1,000 per ton to 57,500 per tonne while cold rolled coil (CRC) prices increased by 500 per ton to 66,200 per tonne at a low inventory level in the last week of September-2022,” analysts at Nomura Financial Advisory and Securities (India) said in a report on October 10.

“But prices have remained stable for the week ended October 7-22 (channel inventory has halved month-on-month as per Steelmint),” said analysts at Nomura.

Note that the prices are higher than the pre-covid levels. In addition, they are at a premium to importing prices from South Korea and China. This means that domestic steel companies such as Tata Steel Ltd., JSW Steel Ltd. and Jindal Steel and Power Ltd. are at risk from a possible increase in imports.

Shares of these companies are down 17-28% from their 52-week highs. Recall that the stock prices had fallen significantly after the imposition of export duty on steel in May. This remains a sentimental overhang on the stock.

This has resulted in a slowdown in exports. Weak global demand is not helping either.

Analysts at Nomura said, “We expect steel production to pick up in the third quarter as maintenance activities are completed, which could weaken steel prices on better supplies if raw material price levels are maintained.” ”

Iron ore prices remain stable. Analysts at Nomura said coking coal prices have risen by $8 a tonne week-on-week to $253 a tonne in October so far. Overall, the average HRC spread has increased by 1.4% month-on-month so far in October-22, he added.

It remains to be seen how the festive demand is met, as automakers expect the season to boost sales. Besides, resumption of construction activities will augur well for steel demand.