Surging demand for steel lifts prices

Mumbai | Kolkata: Domestic steel companies have increased prices by Rs 2,700-3,000 per tonne in August — the third time since the start of the pandemic — as demand improves and input costs remain high due to shortage of iron ore. The uptick is in line with an increase in the international price of steel.

While both primary and secondary steel players increased benchmark prices of hot-rolled coils by Rs 700-750 per tonne on an average from July 2020, for cold-rolled coils, prices have gone up by Rs 500-550 per tonne. Those of pig iron and steel have gone up by Rs 3,000 per tonne in the local market in August, industry sources said.

A key factor is international steel prices, which have improved by almost $500 per tonne, according to a top official of a state-owned steel major.

A number of domestic user industries, including infrastructure, are showing strong demand trends which have also led to the price increase, the official said.

“A combination of global price hike, supply correction that has happened overall in the system and pent-up demand as several segments are trying to make up for the lost quarters”, said Jayant Acharya, commercial and marketing director at JSW Steel, as reasons for the price increase.

According to Acharya, demand is picking up in India and as user industries like construction have liquidated the stocks available, it has resulted in pent-up demand for steel. JSW Steel has increased prices by Rs 2,700 per tonne and believes there is scope for further increase next month.

“Steel makers are poised for a sequential uptick in performance in Q2, aided by a gradually improving domestic demand and softer coking coal costs, in line with favourable international price trends,” said Icra’s senior vice president Jayanta Roy.

Saurabh Bhatnagar, national leader, metals & mining, EY India, said, “The recent surge in steel prices is an indication of the pent-up demand which could not get serviced on account of the pandemic.”

“As infrastructure, MSME and specialty steel sectors start getting back to business, the steel manufacturers will increase prices. The price increase is in sync with the global trends, and will increase further as the other demand degenerating businesses like auto and white goods sectors reach their peak manufacturing capacities,” said Bhatnagar.

A spokesperson of another top steel company said that apart from a rise in demand, there is a big shortage of iron ore. The per tonne price of iron ore has increased by Rs 700, while that of steel pellets has gone up by Rs 300-350, and that of iron ore fines and lumps by Rs 200-250. “Iron ore prices have jumped 85 per cent in July and August, and to absorb the cost, we had to increase steel prices,” said a secondary steel maker requesting anonymity. The secondary players, who account for 55 per cent of India’s total steel production, are facing glitches in of iron ore supply even as some companies started ramping up production in July to nearly 100 per cent.

Since March, iron ore output in Odisha, one of the largest producers, has been low as production has not yet resumed in mines where leases were transferred earlier this year. Of the top five private merchant miners, only Rungta and Essel Mining continued production beyond March.

“A quarter on a quarter drop of $36/MT in coking coal prices is likely to more than offset the recent hike… and result in a sequential improvement in operating margins by about 5 percentage points in Q2 ,” said Icra’s Roy.