Steel prices may fall to Rs 60,000/tonne by March: Crisil Report

Steel prices, which have been on a tear for the past two years, are now likely to adjust due to poor seasonality and may trade at about Rs 60,000/tonne by the end of the current fiscal year, according to a report. Prices remain high due to ongoing uncertainty about supply interruptions, global decarbonization policies, particularly in China, and geopolitical threats related to the Russia-Ukraine conflict, which has driven up raw material costs, according to a study released on Monday by Crisil.

According to the research, price adjustments are probably owing to the beginning of monsoon next month, which will drive down demand as constructions are put on hold, as well as the likely reduced premium realization that local mills may receive from exports.

The onset of the weak demand season due to the monsoon and less-lucrative exports, according to Koustav Mazumdar, an associate director with the agency, means domestic steel prices should begin to ease and eventually move towards Rs 60,000/tonne by March 2023, down from the Rs 76,000/tonne peak reached just last month, but still well above pre-pandemic levels.

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 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/tonne.

On the other hand, export realization premia surged to USD75/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 a low base, but consumer sentiment remains sluggish with higher input costs leading to the 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 USD1,150-1,200/tonne from a peak of USD1,600 in mid-March.

While domestic exports to these markets are expected to remain high in Q1, falling prices will reduce the arbitrage for local mills. To summarise, exports will remain range-bound this fiscal year at 13-14 million tonnes due to reduced quotas to Europe and supply restrictions in Southeast Asia.

However, the agency does not see a free fall as a myriad of uncertainties will limit a freefall in domestic prices, which 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/tonne mark.

Then rising input costs added to the pain. Prices of international coking coal rose 47 percent to USD670/ tonne in three weeks from USD455/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/tonne. All this has kept domestic steel prices elevated. In April, they hit an all-time high of over Rs 76,000/tonne, which is 95 percent over March 2020 levels, when Covid-19 was declared a pandemic.