Domestic steel prices to come under pressure in near-term: Icra

After witnessing uptrend, domestic steel prices are expected to come under pressure in near-term due to the outbreak of deadly coronavirus, Icra said on Thursday. After touching a low of Rs 32,250 tonne in the first week of November 2019, domestic hot-rolled coil (HRC) prices have been on the rise and are currently ruling at around Rs 37,000 tonne, a rise of about 15 per cent, the ratings agency said in a report.

"The domestic steel prices, which despite moderate domestic demand have witnessed an uptrend since November 2019 in line with international trends, are expected to come under pressure in the near-term as an aftermath of the COVID-19 outbreak," it said. Following the coronavirus outbreak in China, the export HRC (hot rolled coil) prices have witnessed a 6 per cent fall since mid-January due to a slowdown in China's steel consumption, leading to weaker economic activities, Icra said.

The export HRC prices were at USD 496/tonne in January 2020 as compared to USD 428/tonne at October-end 2019. "Domestic steel prices are currently trading at a discount of 7 per cent to landed cost from China and at a discount of 3 per cent to landed cost from Japan. While this provides a headroom to domestic steelmakers to increase steel prices, but rising number of confirmed cases of coronavirus in India also remains a concern, and the same along with continuing macroeconomic headwinds, could affect domestic steel consumption and pressurise steel prices in the coming months," Jayanta Roy, Senior Vice-President & Group Head, Corporate Sector Ratings, Icra, said.

Looking at the situation, Icra now estimates the domestic steel consumption growth to remain between 4 per cent to 5 per cent in FY2021, as against our November 2019 forecast of 6.5 per cent, he said. Roy further said that "while a slowdown in steel production in key steel-producing nations may provide market substitution opportunities to Indian steelmakers in the near term, a prolonged outbreak could adversely impact global steel demand and international steel prices and its long-term effect would far outweigh such short-term opportunities"..