Steel trade dips on expectations of price cuts

Activity in the steel trade market has slowed down to a trickle with buyers refraining from stocking on material on expectations of prices going down, said traders and industry executives.
The trade market involves dealers and sub-dealers of primary steel mills like Tata Steel and JSW Steel and they sell material to end-user industries. It is estimated to account for a quarter of the overall steel consumption in the country.

The trade market is already operating below the listed price of primary steel mills and there are expectations that the mills themselves will be marking down their prices in line with international prices of the alloy.

JSW Steel has cut down its list price for benchmark hot-rolled coil (HRC) steel for May by Rs 2,000 per tonne compared to April to Rs 59,750, data from SteelMint show. ArcelorMittal Nippon Steel India (AMNS India) has cut it by Rs 2,500 per tonne to Rs 60,000. Other major players like Tata Steel, SAIL and Jindal Steel and Power are expected to follow suit.

The market expects further drops in prices and buyers will continue to remain cautious for the coming weeks, said a leading Mumbai-based dealer.

“Demand at a fundamental level is strong,” TV Narendran, the managing director of Tata Steel told ET in an interview Wednesday.

“But what happens in steel is because of the cyclicality, there's sentiment driven demand. When the steel price is going up, people will buy more than they need and if they feel the price is going to go down, they'll buy less than they need,” he said.

The ongoing price cuts follow a hike in list price by steel mills in April. There was little acceptance for the higher price in the trade market, industry watchers said. In fact, the lower takeoff in the trade market was one of the reasons for inventory to accumulate with mills, prompting the price cuts.

“Everyone is cautious as no one knows where the bottom is,” the Mumbai-based dealer quoted above said.

Meanwhile, imported steel has become available at prices undercutting that of domestic mills, further prompting the price cut. Imported HRC is available in the market at Rs 56,000-57,000 per tonne, market watchers said.

"These price swings are normal. Steel prices have corrected in line with the market trends driven by global factors, largely related to China, as the demand recovery there was slower than expected,” said Ranjan Dhar, Chief Marketing Officer, AM/NS India.

The price revision also reflects a drop in input costs for steel mills, including coking coal.

Exports markets, which have been an attractive alternative for Indian mills to sell excess inventory to, have also slowed down. Exports of HRC/plates from India have dropped to 401,067 tonnes in April as compared with 467,067 tonnes in March, as per SteelMint data.

However, mills are optimistic of prices bouncing up in the coming weeks.

“We expect Chinese demand to expand in the coming two quarters," Dhar said. Structurally, global demand this year is expected to be good as projected by the World Steel Association, which has projected a 2.3% growth in steel consumption, he added.

“The domestic demand outlook aided by the rapidly growing economy remains robust as well and domestic consumption should expand by over 7% this year. Also, the stock levels across the supply chain are low. These factors could lead to a V-shaped price recovery soon," he said.