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Oversupply to Drive Price Correction in India in Jul-Sep Quarter

Steel News - Published on Fri, 03 Jul 2020

Image Source: Steel Prices Coronavirus COVID19
India Ratings and Research’s in latest report said that domestic gross spreads per tonne, realisation per tonne of steel minus raw material cost per tonne of steel, for both hot rolled coil and rebar are expected to fall further in 2QFY21 with a further fall in steel prices due to oversupply because domestic production will gradually increase with the easing of lockdown restrictions along with no corresponding increase in steel demand. By mid-June 2020, rebar spreads corrected more than HRC spreads due to a sharper fall in demand than available supply, because of the presence of several small and mid-sized players and fragmented nature of the industry within the long products segment, leading to intense competition. However, 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.

Both HRC and rebar prices were down 3% and 4% mom, respectively in mid-June 2020. 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.

The increase in Chinese imports benefited domestic steel players, especially the large steel players who were operational at lower utilisation levels during the lockdown and who compensated for the dull domestic demand by increasing steel exports majorly to China albeit at lower margins. However, timely policy support from the government would help bolster the demand for the domestic steel sector. This is in line with the agency’s expectation and COVID-19 Impact Assessment: Pick-up in Exports & Policy Support to Save Indian Steel Industry.

Small and mid-sized steel players especially those within the micro, small and medium enterprises category 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, electricity etc. However, most steel producers are have raised a plea for the waiver of fixed demand charges and surcharges on electricity bills and charging of the actual units consumed during the lockdown period by the respective state electricity boards as well as relaxation in terms of payments of electricity bills, till the situation is favourable for the smooth running of steel plants.

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Posted By : Yogender Pancholi on Fri, 03 Jul 2020
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