Prices of hot rolled and cold rolled coils declined by around Rs 3,000 per tonne in the last 40 days mainly due to the continuing slowdown in automotive, housing and infrastructure sectors.
A demand slump sparked by a slowdown in major consuming sectors continues to take a toll on steel prices in July. Prices of hot rolled and cold rolled coils declined by around Rs 3,000 per tonne in the last 40 days mainly due to the continuing slowdown in automotive, housing and infrastructure sectors. The trade tension between the US and China also has contributed to the fall in prices.
During 2018-2019, international steel prices for hot rolled and cold rolled coils have declined by 11.5% and 11.9% respectively compared with 2017-18 prices. Steel prices fell below Rs 40,000 per tonne in the domestic market, which is the lowest since December 2017. The industry is also facing an inventory pile-up due to demand slump.
Why did steel prices fall?
Steel prices are falling because of demand-related concerns, especially given the decline in the automobile sector. The second quarter of the year typically sees a slowdown in construction activities because of the monsoon. That may also be a reason for weak steel prices at present.
“The slowdown in consuming industries has caused the fall in domestic demand and prices,”Ramesh Iyer, product head, steel, Indian Commodity Exchange (ICEX).
Manoj Jain, director and head- commodities at IndiaNivesh attributed the fall in prices to global factors. “Decline in global consumption amidst trade tension also has hurt demand growth,” he said.
Auto sales across all the segments have fallen in recent months. To reduce the increasing inventories, manufacturers have cut down production amid weak retail sales and subdued consumer sentiment. Domestic sales of vehicles including passenger vehicles, commercial vehicles, and two-wheelers fell 12 per cent in June 2019 compared with the same month last year. The combined sales of all automobiles fell from 22 lakh units in June 2018 to 19 lakh units in June 2019.
Similarly, demand in the infrastructure sector has also weakened with investment in new projects coming down by 80 per cent from Rs 2.46 lakh crore in Q4 FY18 to just Rs 49,000 crore in Q1 FY19, according to figures released by CMIE.
Why steel imports are rising?
There are many other factors that have contributed to the crisis in steel sector. The main reasons are imposition of 25% safeguard duty by the US, safeguard duties imposed by Europe and Canada on certain items, decline in steel prices in the world market, steel exports of certain countries getting diverted to India, imports of special steel products not produced domestically and increase in imports from FTA partner countries.
India’s exports fell 30% the last financial year compared with the previous fiscal. Iron and steel contribute close to 3 per cent of India’s total exports and India accounts for around 5 per cent of the global steel exports.