Steel Price Scenerio in Nov/Dec & Q4
Uncertainty Prevails in Steel Price Trends
Although PMI (HSBC Markit Purchasing Manager Index), for top 5 steel making nations – China, Japan, India, US and Russia (Accounting for almost 73% production) for October signals across the board improvement in manufacturing conditions, significant steel demand growth in short term remains elusive with winter led slowdown in many regions. On the other hand, BF based steel makers, which are facing higher coking coal costs almost USD 100 per tonne, are looking to increase their prices. Chinese steel mills, to capitalize on improved realization, have been running at full throttle in last 4-5 months and are hiking their domestic & export prices regularly thus elevating global levels giving space to steel mills in other exporting countries to aim for higher prices. However, the prospects for Indian steel market for both long & flat products remain uncertain as the growth in demand is far less than increased availability putting a question mark on the ability of BF based steel mills to pass on hingher coking coal led costs in next 2-3 months. Theoritically, prime producers steel prices should go up by about INR 6000 per tonne to offset additional coking coal cost in Q3 and even if passed partially could cause havoc in the market.”
Despite Supply Side Glut Iron Ore Prices Remain Strong
Seaborne iron ore market has been rocking since October beginning with spot prices for benchmark 62% fines now hovering slightly above USD 65 mark as severe weakening in Chinese Yuan against USD, ie ample onshore money supply chasing a limited menu of accessible dollar-linked assets, has resulted in increased speculations on commodity futures in China keeping iron ore hot. But rising iron ore supply, as evidenced by surging imports and rising port inventory, combined with very weak steel margins and seasonally lower steel production in the months ahead should combine to send iron ore prices back towards the more fundamentally sustainable USD 50 a tonne level.
Coking coal price explosion spreads to November
Signaling that supply side tightness in seaborne coking coal, rather than subsiding, is increasing the prices of prime hard coking surged further by USD 7 per tonne (2.8%) to USD 255 FOB Australia on Tuesday higher by USD 55 per tonne than Q4 benchmark of USD 200. A host of factors including mine closures and flood hit logistic issues in China, supply side disruption & geological issues in many mines in Australia & non availability from US amid higher appetite from Chinese steel mills thriving on good margins on strong steel prices have resulted in this surge. Although normalcy in operations was expected to return in short term, reverse seems to be happening as seen in continued surge. Heavy rains in coming months in Queensland could push prices to USD 300 plus levels last seen in Q1 of 2011.”
Cost of BF based Steel Production to increase
As a result, steel making cost, which is now facing additional burden of about USD 85(USD 200-92=108*0.8) for benchmark based buyers, could further go up by USD 100 in Jan-Mar quarter & for spot buyers, a real nightmare for steel mills as well as users. Japan's biggest steelmaker Nippon Steel & Sumitomo Metal Corp is seeking an increase in product prices of about JPY 10,000 (USD 96) per tonne from customers. Mr Kosei Shindo president of Nippon Steel said that "Given the surge in coking coal prices, we are now seeking an increase in steel product prices by JPY 10,000 a tonne (USD 96+) in total."
Chinese Steel Market Continues to Strengthen
The post-holiday rally in Chinese domestic steel prices is continuing with prices of billets, rebar, wire rod, plates and HR etc posting gains every day thus taking MoM gains to USD 30-50. As a result, Chinese sellers are hiking their export offers on daily basis (Billet USD 350 FOB, HR USD 435) giving respite to steel mills worldwide. However, with likely winter led slowdown in demand, the sustainability of the rally remains doubtful and a steep reduction can not be ruled out.
Source: Strategic Research Institute
Direction for Indian Steel Market remains Hazy
Although October numbers from Joint Plant Committee are awaited, in the first half of 2016-17, India's finished steel consumption stood at 40.561 million tonnes up by just 2.5% YoY while finished steel production grew by 9% YoY to 48.846 million tonnes. Indian long product market, dominated by secondary steel makers, crashed in October to almost nullify flat product sympathy rally in August & September and is at cross roads. However, primary mills, on cost push, are continuing to increase their rebar pricesfor project sales and are currently at INR 34500-35500 plus VAT/CST. On the other hand, Indian flat producers, after imposition of AD duty on flat products in Early August, have managed to improve their realization by INR 2500-4000 per tonne and are operating at INR 36000-37000 plus VAT/CST levels. But the retail market has started to cool in last 15-20 days and retail prices have slid by about INR 1000 setting a negative direction for flat products. Now to offset higher coking coal costs, partially, some of the prime producers have hiked their prices for Novemebr sales (Rebar 500-1400; Wire Rod-1300-1400; Flat products- 1250) and we need to wait for announcements from other mills. However, the important factor is demand growth & availability for the domestic market, which will determine the quantum & timeline of further hikes provided the same is absorbed by the market, which the market player feel is difficult due to sluggish buying. The silver lining is that improved global prices could provide an avenue to Indian steel mills to step up export volumes thus curtailing domestic volumes to regulate pressure on price line.