Steel players need to look for exports

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Published: June 9, 2020 5:35 AM

Edelweiss said as export prices are at a 14% discount (Rs 5,000/ tonne) to domestic prices, margins of steel companies, particularly flat-heavy players, would come under pressure.

Domestic steel producers have also reduced HRC prices by Rs 1,000-1,500/to in Jun'20.Domestic steel producers have also reduced HRC prices by Rs 1,000-1,500/to in Jun’20.

Steel manufacturers may have to continuously look for the less-lucrative export markets, at least till September, as domestic demand may continue to remain subdued, rating agencies say.

Amid complete lockdown of economic activity following the Covid-19 pandemic, export has been the silver lining for the industry contributing 28% of the total finished production in April. However, export realisations for hot-rolled coils (HRC) remain much lower at $405 per million tonne (FOB price, Rs 30,600/MT at current exchange rates) than the domestic realisation of Rs 36,000/MT, resulting in a 15% lower gross contribution on such exports, said rating agency Icra.

“Given that the lockdown in India continued in May and continues to remain in force for some Covid-19 hotspots till June and the fact that second quarter remains a seasonally weak quarter, domestic steel demand is likely to remain shallow in the first half of FY21. In such a scenario, Indian steel makers would have to push exports, even though less profitable, to keep operating at somewhat better capacity utilisation rates,” said Icra’s senior vice-president Jayanta Roy.

Brokerage firm Motilal Oswal said HRC prices in domestic traders’ market have corrected by Rs 2,000/tonne year-to-date in the current fiscal to Rs 36,250/tonne ($479/tonne) due to limited demand from the March price of Rs 38,250/tonne. It said domestic steel producers have also reduced HRC prices by Rs 1,000-1,500/to in Jun’20.

“We do not expect domestic HRC prices to decline much from current levels as they are already below the anti-dumping duty (ADD) reference price of $489/tonne. Rebar prices, too, have declined by Rs 2,000/ tonne year-to-date so far in the current fiscal toRs 38,000/ tonne in trader markets,” it said.

Share of exports is expected to remain higher in the first half of the current fiscal.

During May, export prices in Asian region improved significantly by around $30/tonne month-on-month (m-o-m). Accordingly, both HRC and billet export prices at East Coast of India improved by $30/tonne m-o-m to $423/tonne and $385/tonne, respectively. However, HRC export prices are still lower by 15% over the Q4FY20 average; whereas billets prices are lower by 4% over Q4FY20 average.

Edelweiss said as export prices are at a 14% discount (Rs 5,000/ tonne) to domestic prices, margins of steel companies, particularly flat-heavy players, would come under pressure.

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