INDIAN STEEL INDUSTRY: MONTHLY UPDATE

June 2019 RESEARCH SERVICES

Steel production and consumption trends

Domestic steel consumption grew by 6.5% in 2M FY2020 and is likely to remain low during the seasonally weak Q2 FY2020. ICRA believes that the construction sector would be at the
forefront of the demand recovery in the second half of FY2020 on the back of an expected boost to the infrastructure sector to be provided by the re-elected Government. Softening demand
and a 29.6% de-growth in steel exports kept the domestic crude steel production growth low at 3.3% in 2M FY2020. Steel imports reported a YoY decline of 7.9% in 2M FY2020. India
remained a net importer of steel in 2M FY2020.
World crude steel production witnessed a YoY growth of 5.0% in 5M CY2019 after recording a 4.6% increase in CY2018. China, which accounts for nearly 50% of the global crude steel
production, reported a healthy YoY growth of 10.2% in 5M CY2019, on account of a record production in April and May 2019. Steel production in India, which is the second-largest steel
producer in the world, grew by 1.1% in 5M CY2019. The US witnessed a YoY growth rate of 6.4% in steel production in 5M CY2019. However, steel production in the European Union declined
by 3.7% in 5M CY2019 due to a de-growth in output in Italy, Germany and France.

Chart 1: Monthly Domestic Steel Consumption/Production Trends Chart 2: Monthly Domestic Steel Imports/Exports Trends
14 40% 1.2 100%
12 1.0
20% 50%

Growth (%)
10

Growth (%)
0.8
8
mt

0%

mt
6 0.6 0%
4 -20% 0.4
2 -50%
0.2
0 -40%
0.0 -100%

Consumption (in mt) Production (in mt)

Import (in mt) Export (in mt)
Consumption Growth YoY (%) Production Growth YoY (%) Import Growth YoY (%) Export Growth YoY (%)
Source: JPC, ICRA research Source: JPC, ICRA research

Chart 3: Steel Production in Major Economies (4M CY2019 vs 4M CY2018)

1000 15.0%
10.2%
800 10.0%
6.4%
5.0%
600
mt

5.0%
%

1.1%
400
200 -3.7% 0.0%

0 -5.0%
World China India Euro USA
Jan-May 18 Jan-May 19 Growth (%, RHS)
Source: Worldsteel.org, ICRA research

ICRA Research Services

Domestic steel price trends vis-à-vis international steel prices

International hot-rolled coil (HRC) prices softened to ~US$492/MT in June 2019 from ~US$515/MT in May 2019, due to an increase in supplies, given the record steel production in
China. International rebar prices also declined to US$508/MT in June 2019 from ~US$528/MT in May 2019, in line with the trend in international HRC prices. Going forward, ICRA believes
that steel prices would remain sensitive to China’s commitment towards infrastructure spending.

After domestic HRC players slashed prices by Rs. 500/MT in May 2019, domestic HRC prices remained unchanged at Rs. 40,250/MT in June 2019. Domestic rebar prices, on the other
hand, declined by Rs. 1635/MT to Rs. 33,625/MT in June 2019 from Rs. 35,260/MT in May 2019 on account of weak demand following sluggish infrastructure and construction activity.
Domestic HRC prices are currently trading at a discount to imported prices. While there is a scope for an immediate price hike due to this disparity and due to input cost-push, ICRA
expects that any meaningful price improvement may happen only in H2 FY2020, when the auto sector is expected to do well on the back of pre-buying ahead of the BS-VI rollout.
Likelihood of continuation of increased infrastructure spending with the re-election of the previous Government is expected to provide additional fillip to domestic steel prices in the
medium term.

Chart 4: Trend in International HRC Prices Chart 5: Trend in Domestic HRC Prices
650 50000
HRC prices (USD/MT)

600 45000

HRC price (Rs/MT)

550
40000
500
450 35000
400 30000
350
25000
300
Jun-18

Sep-18

Nov-18

Dec-18

Feb-19

Jun-19
Jul-18

Oct-18
Apr-18

Aug-18

Apr-19
Jan-19
May-18

Mar-19

May-19
20000

Jun-18

Nov-18

Dec-18

Jun-19
Jul-18

Sep-18

Oct-18
Apr-18

Aug-18

Feb-19

Apr-19
May-18

Jan-19

Mar-19

May-19
International HRC Price (China export FOB) USD/MT
India HRC Price (ex-works) Rs/MT
Source: Metal Bulletin, ICRA research
Source: Metal Bulletin, ICRA research

Chart 6: Trend in International Rebar Prices Chart 7: Trend in Domestic Rebar Prices
600 50000

Rebar prices (Rs./MT)

Rebar Price (USD/MT)

40000
500
30000
400 20000

300 10000

Jun-18

Nov-18

Jun-19
Dec-18
Jul-18

Oct-18

Mar-19
Sep-18

Feb-19

Apr-19
May-18

Aug-18

Jan-19

May-19
Jun-18

Nov-18

Jun-19
Dec-18

Mar-19
Jul-18

Oct-18
Sep-18

Feb-19

Apr-19
May-18

Aug-18

May-19
Jan-19

International Rebar Price (China export FOB) USD/MT India Rebar Price (ex-works) Rs/MT

Source: Metal Bulletin, ICRA research Source: Metal Bulletin, ICRA research

ICRA Research Services

Raw material scenario
On a YoY basis, seaborne coking coal prices increased by 11% to US$207/MT in CY2018 from Chart 8: Trend in Spot Price of Premium Hard Coking Coal
US$187/MT in CY2017 on the back of supply-side issues in Australia, despite an 8% YoY decline 350

HCC Price (in USD per Tonne)

in Chinese coking coal imports. In the current calendar year, seaborne coking coal prices 300
initially witnessed some softness, with prices retreating to US$199/MT in January 2019 on the 250
200
back of lower coking coal imports by China. However, coking coal prices remained above
150
US$200/MT supported by a healthy growth in Chinese steel production during 5M CY2019.
100
Chinese coking coal imports increased by 31% to 29.76 mt in 5M CY2019. Thereafter, coking 50
coal prices softened to US$192/MT as on June 28, 2019 on the back of increase in supplies.

Dec-15

Jun-16

Nov-16
Dec-16

Jun-17
Jul-17

Nov-17
Dec-17

Jun-18

Nov-18
Dec-18

Jun-19
Jul-16
Aug-16

Aug-17

Jul-18
Aug-18
Oct-16

Oct-17

Sep-18
Oct-18

Feb-19
Feb-16
Apr-16

Sep-16

Feb-17
Apr-17

Sep-17

Feb-18
Apr-18

Apr-19
Mar-16
May-16

Mar-17
May-17

Mar-18
May-18

Mar-19
May-19
Jan-16

Jan-17

Jan-18

Jan-19
With an expected improvement in domestic coal supplies in China, coking coal prices are
expected to soften further, going forward. Spot Premium Hard Coking Coal Australia (FOB East Coast port) USD/Tonne
Source: Bloomberg, Metalbulletin, ICRA research

In CY2018, international iron ore prices averaged at US$69.70/MT, which is 2.6% lower than the average iron ore price of US$71.54/MT in CY2017. In January 2019, the prices surged to
US$75.9/MT on the back of uncertainty in supplies following the announcement of mines closure by Vale S.A., Brazil, which is the largest producer of iron ore in the world. Vale on
January 29, 2019 announced the decommissioning of all its upstream tailing dams over the next three years, implying production stoppage of about 40 mt per year as per the company
estimates. The rally in international iron ore prices continued with prices touching US$123.65/MT on July 1, 2019 on account of supply disruptions. Domestic iron ore prices, on the
other hand, witnessed some volatility in the current year. In Chhattisgarh, NMDC kept prices of iron ore lump unchanged at Rs. 3100/MT in June 2019, after raising prices by Rs. 250/MT
in May 2019. The current iron ore supply glut in Odisha, however, has arrested the increase in domestic iron ore prices due to the sharp rally in international iron ore prices.

Chart 9: Trend in International Iron Ore Prices Chart 10: Trend in Domestic Iron Ore Prices
130 4500
Iron Ore Price in US$/MT

4000
110
3500

In Rs./MT
90 3000
2500
70
2000
50 1500
1000
30

Nov-16
Dec-16

Jun-17

Nov-17
Dec-17

Jun-18

Nov-18
Dec-18
Jul-17

Jul-18
Oct-16

Oct-17

Feb-18

Oct-18
Sep-16

Feb-17

Apr-17

Sep-17

Apr-18

Sep-18

Feb-19

Apr-19
Mar-17

Mar-19
May-17

Aug-17

Mar-18

May-18

Aug-18

May-19
Jan-17

Jan-18

Jan-19
Jun-16

Nov-16
Dec-16

Jun-17

Nov-17
Dec-17

Jun-18

Nov-18
Dec-18

Jun-19
May-16
Jul-16

Oct-16

May-17
Jul-17

Oct-17

May-18
Jul-18

Oct-18

May-19
Feb-16
Apr-16

Sep-16

Feb-17
Apr-17

Sep-17

Feb-18
Apr-18

Sep-18

Feb-19
Apr-19
Aug-16

Aug-17

Aug-18
Jan-16
Mar-16

Jan-17
Mar-17

Jan-18
Mar-18

Jan-19
Mar-19

Odisha (60-62%) Lumps Karnataka (60-62%) Lumps

Iron Ore spot price CFR China NMDC Chhattisgarh (65.5%) Lumps

Source: Metal Bulletin, ICRA research Source: Indian Bureau of Mines, NMDC price notifications, ICRA research
Note: Data for Odisha and Karnataka prices not published after March 2019

ICRA Research Services

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