Steel producers are struggling with weak demand, price falls
Indian steelmakers have yet to see the light at the end of the tunnel as global demand remains weak, putting pressure on domestic prices. The Chinese real estate sector, a crucial market for metals, has not yet gained sufficient momentum.
“The average HRC prices in India fell €900 per ton week-on-week €59,000 per ton, with leading Indian steel producers such as JSW Steel Ltd and AM/NS India lowering their sales price of hot rolled coils in early May €2,000-2,500 per tonne month-on-month,” analysts from Nomura Financial Advisory and Securities (India) said in a May 8 report. AM/NS India is a joint venture between ArcelorMittal and Nippon Steel.
In addition, domestic prices are currently higher than onshore prices from countries such as China, Vietnam and Japan, indicating that a further decline in domestic steel prices is possible.
On the positive side, raw material costs have eased somewhat, which could positively impact margin performance. Despite a 1.7% month-on-month decline in the HRC price, average HRC spreads have widened 4.3% month-on-month in May year-to-date, according to Nomura analysts. This follows a significant drop in coking coal prices of 16% month on month compared to the April average.
In addition, iron ore, another important raw material, experienced a price decrease. NMDC, the state-owned iron ore producer, slashed lump ore prices and fines by nearly 7% and 2% respectively to €4,200 per ton and €4,010 per ton, as of April 29. The cut comes after NMDC raised the price of the commodity four times in a row since the government eliminated or reduced export tariffs on iron ore in mid-November.
But there are signs of recovery in world prices of iron ore and coking coal, analysts at Motilal Oswal Financial Services found in a May 8 report. Investors in steel stocks would do well to monitor the trajectory of raw material costs closely.
Shares of leading steel companies such as JSW Steel and Tata Steel are down 5%-13% from their respective 52-week highs. Any significant benefits from this are contingent on demand recovery, which currently seems unlikely.
“Demand remains sluggish as customers in all sectors resort to ‘wait and see’ or ‘needs-based buying’ and export order books for April 2023 were also full. Trading prices could be affected in the coming weeks,” Motilal Oswal analysts said.
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