Global steel demand needs revival for domestic prices to rise
Shares of key Indian steel companies such as Tata Steel Ltd, Jindal Steel & Power Ltd, and Steel Authority of India Ltd have scaled new 52-week highs in September, rising by 5-15% in the past one week.
The optimism seems to be stemming from the recent policy measures by China, a key market for metals. The new stimulus measures include a cut in interest rates on existing mortgages and reduction in down payment requirement for first- and second-time home buyers. But this may not move the needle significantly for near-term global steel demand as it may take a while for the Chinese policy measures to show results.
Plus, this time, it could be different. As analysts at Motilal Oswal Financial Services said in a report on 5 September, “Unlike the past when the property sector came to rescue the economy, we believe this stimulus will have limited upside in the long run due to muted demand from first-time buyers, no increase in income, record youth unemployment and an aging population.” The real estate issue faced by China is a demand issue more than a regulatory issue, added the report.
While demand improvement would not happen in a hurry, there is scope and a need to curtail supply. “The bigger thing to watch is the supply side dynamics. It is crucial that China cuts steel production and maintains it on the same level as last year as this would aid the global demand supply balance,” said Satyadeep Jain, an analyst at Ambit Capital.
Back home, it helps that the demand conditions in India are healthy given the government’s thrust on infrastructure. Domestic hot rolled coil prices fell each month from April to June and have risen a bit in July and August consecutively, according to SteelMint.
As on 1 September, the price stood at ₹56,800 per tonne, up by nearly 1% versus the average in August. It is likely that the weakness in domestic steel price has bottomed out.
On the flip side, if the monsoon picks up in the coming days, then it would have a bearing on the construction activities. Moreover, the cost of coking coal, an important raw material, has increased month-on-month in August by 9% to $253 per tonne, according to CoalMint.
Thus, the benefit of the slightly higher steel prices on the margins of steel companies could be offset.
To be sure, a pickup in the global demand may support a meaningful rally in the domestic steel price, which could cheer investors.
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Updated: 06 Sep 2023, 01:25 AM IST
