After two years of sustained rally, Crisil on Monday said steel prices are set for a correction, adding that the metal may fall 60,000 per tonne by the end of the current financial year.
Steel prices have touched the peak of 76,000 per tonne last month, which is 95% higher than the March 2020 level, when Covid-19 was declared a pandemic.
“Domestic steel prices are showing signs of fatigue following supply disruptions, particularly decarbonization measures in China and geopolitical risks stemming from the Russo-Ukraine war, leading to higher raw material costs,” Crisil said in a report. Has been.”
“While prices have deferred predictions of a correction due to continued uncertainties, some softening is on the cards with the onset of monsoon,” the report said.
Heightened geopolitical risks limited the correction in prices, which began to moderate earlier this year. But the Russia-Ukraine conflict, which began in late February, intensified again over fears of supply-disruption. In Europe and the US, where the impact was greater, prices crossed $1,600 a tonne.
“Then rising input costs added to the pain. International coking coal (FOB Australia) prices rose 47% in three weeks to $670 a tonne, from $455 a tonne at the end of February, which is traditionally the rate for countries. Amid high demand was due to flooding of mines imported from Russia. While coking coal prices have declined from their peak, they continue to be supported by strong demand at $500 a tonne,” the report said.
“Despite sluggish demand in January-March, steel prices have risen due to higher input costs and buoyant exports. At the same time, domestic supply remained stagnant, bridging the gap between global reach and domestic prices, which was once approx. 15,000 per tonne on the other hand, the export realization premium has increased to $75 a tonne in early May,” says Hetal Gandhi, director, CRISIL Research.
According to the report, steel mills made the best use of the rise in global prices, but domestic demand started to decline. “Rising manufacturing costs, and multiple price hikes by manufacturers of automobiles, consumer appliances and durables, dampened demand in the last quarter of FY22.”
“In Q1 of the current fiscal, domestic demand may witness an optical recovery due to low-base effect, but consumer sentiment remains sluggish with higher input costs, leading to postponement of purchase and manufacturing decisions, “It said.
While exports from India to these markets will remain high in the first quarter of this fiscal, a reduction in prices will reduce arbitrage for domestic mills. Overall, due to revised quota to Europe and supply constraints in South-East Asia, exports from India will remain in the range of 13-14 million tonnes in the current fiscal.
Crisil said further pressure on the supply and raw material value chain and escalation of the Russia-Ukraine conflict would be monitored.