Supportive policies needed to boost demand for steel

By: | Published: May 24, 2016 7:10 AM

The spate of trade measures adopted by various countries against Chinese exports has made China broadly monitoring its export prices. All eyes are set on China as to how it eliminates surplus capacity with targets set for closing capacities of 100-150 MT in the next 5 years

What is happening to the pricing front? The New Year began with lots of hope that the industry has got over the bad phase and time has come to look up. In fact Q4 for Indian steel companies and Q1 for others abroad saw some reasonably good rise in market realisation that continued in April and even in first week of May. The latest trend shows that upward movement in prices may be short lived, though not perilously low as in the last year.

The benchmark prices of Chinese HRC (SS 400) fob Tianjin ruling at $260/t in November ’15 went up to $283/t in February ’16, $473/t in April ’16 and currently at $368/t. Similarly the benchmark prices of Re Bar at $345/t fob Turkey in November ’15 dropped to $315/t in February ’16 and rose to $478/t in April ’16 and currently ruling at $465/t. The factor that partially engineered this fall was the prices of iron ore Fe 62% ruling at $44/t CFR China in November ’15 and rose to $51/t in February ’16 and currently trading at $55/t. Similarly scrap prices (1/2 80:20 HMS) at $173/t in November ’15 went up to $182/t in February ’16 has since risen to $270/t and coking coal at $73/t FOB Australia in November ’15 rose to $74.5/t in February ’16 and currently rests at $88/t. Marginal dip in prices is always synonymous with stabilisation of sudden rise, but the downward trend, if continued for few more weeks would likely to be a cause of worry.

Expectedly the falling trend slows down market activities in expectation of stability that appears illusive especially in the backdrop of last two years’ nightmarish experience of sharp fall in demand, massive surplus capacity and urge to export at predatory prices just to keep the mills running leading to plethora of trade restrictive measures with Banks flooded with stressed assets as outstanding loans proliferated. Indian steel prices, thanks to MIP, are no longer influenced by low export prices and the ruling domestic HRC prices at $448/t ex-works is remunerative as compared to what it was a few months back.

The sudden surge in prices from December ’15 onwards owed its origin to inventory build-up by consumers, temporary supply disruptions in iron ore from Australia, stimulus measures in terms of construction of new roads, rail network, new ports particularly for the internal areas in China. Chinese demand for more iron ore (imports at 241.6 MT in Jan-March ’16 is 6.5% more last year) triggered the upward price movement.

The spate of trade measures adopted by various countries against Chinese exports has made China broadly monitoring its export prices. All eyes are set on China as to how it eliminates surplus capacity with targets set for closing capacities of 100-150 MT in the next 5 years which are considered inadequate by many other countries. But China is equally concerned about the large number of displaced persons on account of capacity elimination and would deal with surplus capacities in the best interest of its economy.

It is interesting to see that as trade measures are adopted aplenty by major steel consuming countries, including India, the domestic producers are assured of the market that was earlier lost to rising imports in last year. The hefty duties imposed under AD and CVD (recently the US imposed 533% duties on Chinese CR Coils) would help the domestic markets in the US, EU and others virtually out of Chinese bounds.

Indian market due to lowering of imports has been enlarged by about 5-6 MT in the current year. The domestic market that rose by 4.3% in FY16 is eagerly waiting for the actual hike in fund allocation as per the Budget for roads and railways, rural, irrigation sectors and private corporate and household investment in real estate (Housing for all by 2022), automobile and appliances markets. Economic activities are the outcome of enabling policies. It is hoped that a prudent combination of monetary, fiscal and trade policies in the country would usher in a set of supportive policies in the coming months to boost up demand which would only sustain the remunerative prices for carrying out an effective capacity augmentation process in steel to cater to the rising demand.

The author is DG, Institute of Steel Growth and Development. Views expressed are personal.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition