Coronavirus disrupts supply chain, slows down domestic steel price rally

Though the domestic steel industry is poised for a small price hike in March, continued weak demand amid supply chain disruption due to Coronavirus is expected to keep domestic steel prices under pressure.

China's domestic hot-rolled coil prices have already corrected by Rs 1,000 per tonne in the past few days to Rs 39,000 per tonne.

Prices had peaked to nearly Rs 48,000 in October 2018 before falling to Rs 35,000 per tonne October 2019.

“We are looking at a price hike of Rs 500-750 per tonne from March 1 as global coking coal prices are up and we are about 10 per cent behind when compared to prices in March 2019. So there is room to push up prices,” informed Jayant Acharya, director commercial at JSW Steel.

Domestic steel producers have been raising prices continuously since November.

“Producers want to raise prices for March, but our sense is that there will be a rollover or, eventually, a rollback of price hike as the market is not in a position to take more increases at this juncture,” said a Mumbai-based trader on condition of anonymity.

Alongside, Coronavirus spread has halted Chinese imports of intermediate material used by domestic auto players and white goods manufacturers, in turn impacting the domestic supply chain.

“Auto makers are dependent on China for certain auto components. These shipments have not been coming to India because of Coronavirus. This is the situation with white goods category as well. So the demand for intermediate products here is also gotten affected,” said Nikunj Turakhia, president, Steel Users Federation Of India (SUFI).

India's steel imports, which were already weak due to the economic slowdown, have dried up completely since the Coronavirus outbreak in December, industry officials said.

As per the Joint Plant Committee (JPC) data, India imported 5.07 million tonnes of steel during April-November, down 5.3 per cent over the same period last year.

China's share in total finished steel import declined from 22 per cent during the period under review to 18 per cent, with volumes slipping by 19 per cent in April-November, said JPC data.

Meanwhile, domestic iron ore prices have also dropped due to decline of imports from China owing to Coronavirus outbreak.

According to NMDC investor's presentation, the Coronavirus outbreak that impacted the Chinese economy has led the iron ore prices drop to $83 a tonne since the beginning of February 2020 from earlier peak seen globally at $125 per tonne and $90 seen in recent past.

Analyst at Emkay Research expect iron ore prices in the international market to remain weak as production in China is unlikely to rebound in the immediate term.

Iron ore and coking coal are two key raw materials used in the making of steel.

Though there is a drop in demand for steel in the domestic market inventories of the alloy have also declined on year-on-year basis.

“It is the lower rate of growth of steel production which is showing fall in inventory despite a dull demand scenario,” said Sushim Banerjee, director general at Institute for Steel Development & Growth (INSDAG).

At the beginning of February, domestic steel inventory was 400,000 tonne lower from same period last year and about 200,000 tonne down from beginning of fiscal in April.

“The rate of growth of production in FY20 was at 1-2 per cent as against 4-5 per cent in FY19,” informed Banerjee.

Sajjan Jindal-led JSW Steel, Tata Steel, Jindal Steel & Power, state-owned Steel Authority of India (SAIL) and Rashtriya Ispat Nigam are the top domestic producers.

However, industry officials were of the view that the domestic demand scenario would be clear by mid-March as government spending on infrastructure projects is expected to pick up soon.

“The 6,500 projects across sectors under National Infrastructure Pipeline (NIP) is some hope for the industry and some action in this direction could come in the next few days,” said Banerjee of INSDAC.

Steel industry seeks duty cut on key raw materials in upcoming Budget

The domestic steel industry is seeking reduction in basic customs duty on key raw materials such as coking coal, pet coke, limestone and dolomite in the upcoming Budget.

Finance Minister Nirmala Sitharaman is scheduled to present the Budget for financial year 2020-21 on February 1.

"Anthracite coal, coking coal, coke, limestone, dolomite are vital inputs for the steel industry. The availability of these items in good quality is declining in the country and the industry has to depend on imports on regular basis," industry body Ficci said in its Budget recommendations for Indian steel sector. The basic customs import duty on anthracite coal is 2.5 per cent. Since ferro alloy industry plays a vital role in steel manufacturing, it is necessary to make available these reductants at international competitive price to make Indian steel mills more competitive, it said while recommending that customs duty on anthracite coal be reduced to zero from 2.5 per cent.

Met coke, another vital input for the industry, had always attracted lower and concessional rate of customs duty, it said. However, the basic customs duty was enhanced from 2.5 per cent to 5 per cent with effect from March 1, 2015. Additionally, anti-dumping duty was also imposed on its imports with effect from November 25, 2016.

"As a result, the cost of this (met coke) vital input in steel manufacturing has gone up necessitating increase in price of steel which is acting as deterrence to the competitiveness of domestic products in international markets vis-à-vis similar products of other countries like China," it said.

"Moreover, high inputs costs have led to an inverted duty structure in the domestic industry and are acting as a deterrent to government's Make in India initiative, as domestic producers have less incentive to import met coke. Rather, imports of finished steel goods are preferred," it said and suggested that duty on metallurgical coke be reduced to zero.

The industry body said exemption available to coking coal was also removed by the government in 2014-15 Budget by bringing it at par with other types of coal and imposing 2.5 per cent basic customs duty.