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No respite for steel users as prices likely to remain high: Report

Steel prices are set to go up further due to the expected coal or power shortage and rising raw material prices in China that will potentially weigh on the earlier-anticipated price correction, according to a report.

After a brief cooling down in July-September, domestic steel prices began to rise again in October, with major steelmakers increasing the price of flat steel by Rs 1,500-3,000 per tonne. Long steel prices also rose Rs 3,000 per tonne in the first week of October, led by higher coal prices and healthy demand.

Despite this material increase, domestic flat steel is priced at Rs 10,000-12,000 per tonne, lower than global landed prices. China’s hot-rolled coil was around USD 980 per tonne in September, which kept domestic prices up. That means domestic prices are 13-15 per cent lower than global landed prices.

All this can be stated differently as having room to raise domestic prices further, and a correction this quarter appears unlikely as prices are likely to hold, rating agency Crisil said in the report.

The report added that rising raw material prices in China and the expected coal or power shortage will potentially weigh on the earlier-anticipated price correction. The agency expects prices to retain their upward bias through this quarter.

While the January-September 2021 period saw the cost rising, led by the iron ore rally, the October-December season is likely to see higher cost inflation, led by coking coal and thermal coal, along with other inputs such as ferroalloys, whose prices have surged since September, the agency said said.

This was unlike the last steel price rally of July 2020 to June 2021, which was driven by strong demand in China and all-time-high iron ore prices, the hikes taken in both global and domestic markets this month are a result of stringent steel supply cuts by China and rising coal costs.

Steel supply cuts lowered Chinese exports, as it diverts its exports for domestic use. Moreover, the possibility of further stringent cuts in the upcoming winter is expected to keep the export market tight and thereby prices high.

China, which produced 730 million tonnes (MT) of steel in the first eight months of 2021 that was up 5.3 per cent over last year, is expected to implement supply cuts over the fourth quarter of 2021 to meet its annual production (emissions reduction) target and coal shortage.

To achieve its annual production target of 1,050 MT, China must produce 80 MT on average per month over from September to December, compared with 91 MT produced during the same period last year.
Source: Press Trust of India

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