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Kallanish Kallanish

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May, 25th 2019

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DEC 05

Price fall seen pressuring Indian mill margins


The steep reduction in international steel prices is likely to exert pressure on Indian domestic flat steel prices in the March-2019 quarter after cheaper imports start hitting Indian shores in January, according to ICRA.

Coupled with reduced global prices, the strengthening rupee should result in increased Indian steel imports in the coming months, maintaining India’s status as a net importer. Despite their fall, prices are not low enough to activate anti-dumping duties on flat products. This means imports, especially from free-trade countries like Japan and South Korea, are likely to remain elevated, keeping Indian steel production in check, ICRA says.

Although favourable domestic demand in China kept its steel exports low at 58.7 million tonnes in January-October, “… the recent increase in export rebates on some steel products, including hot rolled coil and expectation of an anaemic domestic demand growth… are likely to result in a pick-up in Chinese steel exports in the coming months,” ICRA says in a report seen by Kallanish. “Any sharp correction in China’s steel prices is likely to keep its exports attractive in the international markets even amidst rising global trade protectionism.”

Seaborne coking coal prices increased 30% from $173/tonne fob Australia in July 2018 to $225/t in late November. Chinese HRC, however, simultaneously weakened by -16%. Given the expectation of a reduction in flats prices in the coming months, Indian blast furnace producers’ margins are seen contracting $20/t in the December quarter and by $50/t in the March-2019 quarter.

“However, given the longer-term linkages between prices of steel and coking coal, we expect seaborne coking coal prices to gradually soften going forward, which would support the profitability of domestic steel players in FY2020,” ICRA comments.

The suspension of operations at NMDC’s Donimalai iron ore mine in Karnataka, meanwhile, is expected to lead to rising ore prices in the southern state, leading to a cost-push for Karnataka mills, the credit rating agency observes. The temporary closure has taken 7 million tonnes/year of capacity off line from the state’s overall 35m t/y. The shortfall will need to be met either by imports, or by procurement from Odisha, Jharkhand and Chhattisgarh, which would entail an increase in state mills’ steelmaking costs.

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