Sustained demand can rationalise steel prices

By: |
December 29, 2020 3:45 AM

Considering WPI prices as whole sale prices and the above data belonging to retail market prices, the differential in range of prices in the two indices are appreciated.

The unlocking of pent-up demand and fresh spark in demand from the OEMs, partly to meet the current demand and partly to build inventory to get relief in a rising market are putting pressure on availability of specific items.The unlocking of pent-up demand and fresh spark in demand from the OEMs, partly to meet the current demand and partly to build inventory to get relief in a rising market are putting pressure on availability of specific items.

Steel prices have been rising for the past four months. It is interesting to look at the data released in WPI items in which a number of categories, more than 30 of them related to steel, are tabulated and released on a monthly basis.

The manufacturing of basic metals having a weight of 9.64% comprises these details. The level of prices in August’20 is nearly equivalent to prices effective in February’20 in the pre-Covid 19 pandemic level. So, it should be appropriate to compare the price rise from Aug’20 level. The WPI for November’20 shows that prices of manufacturing of basic metals have gone up by 4.03% during August’20 and November’20. More specifically, prices for inputs into steel making having a weight of 1.41% has gone up by 9.0% during the period.

The inputs include (as per WPI list) sponge iron/DRI, various categories under ferro silicon and metallic iron. The mild steel semi-finished steel has grown by 1.7%, pencil ingots (by induction furnace) by 7.3%, MS Long products by 4.9% (for construction and Infra), MS wire rods by 6.8% (for making wires and construction), structural items (angles, channels, structural steel, for fabrication) by 6.1%, MS Flats by 8.0%, HRC/Sheets (for tubes and pipes, cold rolling) by 8.3%, CRC/sheets by 8.4% (for automobile, consumer durables, furniture), GP/Coated (for boxes, consumer durables, roofing) by 8.7%, alloy steel wire rods(primarily for auto sector) by 1.6%, SS coils and sheets (architecture, building and construction and utensils) by 3.5% and pipes and tubes (transportation of water, gas and oil) by 2.9%.

Steel items under WPI have, therefore, have risen by 2-9% during August-November’20 period.

The retail price comparison of steel products transacted in the open market tell us a different story. Taking the prices from official sources, it is seen that 2mm HRC prices (inclusive of GST) in Mumbai has gone up from Rs 48,550/t in August’20 to Rs 54,530/t in November’20 in Mumbai, a rise of 11.9% during the period, while CRC/Sheets 0.63mm at Mumbai has gone up in August’20 from Rs 55,740/t to Rs 63,300/t in November;20, a rise of 13.6%, TMT Bar 12mm in Kolkata went up in August’20 from Rs 42,440/t to Rs 44,010/t in November’20, a rise of 3.7% and sponge iron prices in Mumbai has gone up from Rs 23,400/t in August’20 to Rs 25,170/t in November’20, a rise of 7.6% during the period. Thus, the increase in prices range in the retail market between 4 and 14%.

Considering WPI prices as whole sale prices and the above data belonging to retail market prices, the differential in range of prices in the two indices are appreciated. For building up of WPI data, it is seen that more than 20 quotations are received for each of these major items under Steel categories. However, quite often in the absence of regular receipt of quotations each month for individual items, estimation is done on the basis of the trend. The December price rise in the retail steel prices may not make the differential larger and would be firmly determined on release of WPI for December’20 in the next month. The retail prices also are average transactional prices obtained from selected market sources.

The fact remains that Steel prices in Indian market are going up in tandem with rise in prices of raw materials like Iron Ore and Scrap/Sponge Iron, increased logistic cost and most of all due to demand push. For SS items which is predominated by raw materials cost (nearly 70%), Nickel prices (totally imported) have shot up by 39.3% during July to December’20, copper (limited domestic availability) by 23.5%, Molybdenum prices (totally imported) by 27.4% and ferrous scrap prices (part imported) have risen by more than 45% during the period.

The unlocking of pent-up demand and fresh spark in demand from the OEMs, partly to meet the current demand and partly to build inventory to get relief in a rising market are putting pressure on availability of specific items. Non-availability of iron ore has led to production disruption by small and medium units in eastern region leading to supply shortage of TMT Bar.

Although this is no satisfaction for the user industries to know that Chinese export offer of HRC SS-400 has gone up by 34% during August’20 to December’20, domestic prices of HRC in Northern Europe rose by 49% (in euro terms) and Turkish export offer of Rebars (fob Turkey) increased by 43% during the period, the sustainability of market demand over a longer period and not as once in a life time opportunity would bring stability and consolidation in steel market prices.

The author is former DG, Institute of Steel Development and Growth
(Views are personal)

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