The steel industry is not expecting a respite in domestic and global prices anytime soon even as global production of the alloy has slipped to its lowest level on a monthly basis in 2024.
Only a combination of further production cuts and higher consumption from China could aid a recovery in steel prices from here on, industry experts said.
China exporting its surplus steel in global markets has pressurised prices across the world. In India, the prices of hot-rolled coils are down more than 12 per cent since the start of the year.
“Domestic prices will get support if things settle down globally,” said Tushar Chaudhari, analyst at stockbroking firm Prabhudas Lilladher. “Demand is expected to improve post the US elections, and if China supports – either by cutting (production) or stimulating the economy – then, obviously, it will help global pricing and, in turn, domestic prices,” he said.
Weighed down by weak demand from its real estate and automobile sectors, China is estimated to have exported 90 million tonnes of steel last year, and it is expected to reach 100 mt this year.
“Chinese domestic demand has been weaker than expected this year. Coupled with a limited reduction in production and low domestic margins, this has led to an influx of Chinese exports, especially to less protected markets, which will reach 100 million tonnes in 2024,” Fitch Ratings said in a recent report.
Global production of steel, meanwhile, declined to 144.8 mt in August, the lowest monthly output in 2024, data from the World Steel Association showed. Production fell by 6.5 per cent on year, which is the steepest fall in percentage terms in nearly two years, as per the data.
Global production has decreased for the second month in a row and comes at a time when steel prices have been struggling globally amid subdued demand in China and the country exporting its surplus steel.
“Over the last three-four years, as per their policy for the environment, they (China) usually cut their production in the second half,” Chaudhari of Prabhudas Lilladher said. We will see production lower in the last four-five months, but the issue is demand is also weak.”
China produced an average of 76 million tonnes of steel each month between September to December last year. “Ideally, they should cut it further (this year),” Chaudhari said.
Sumit Jhunjhunwala, assistant vice president at credit rating agency ICRA, said the positive impact of lower production of steel, both in China and India, is likely to reflect with a lag of three-four months. A meaningful increase in prices is likely to be driven by an improvement in demand from China rather than curbing production, he said.
For domestic steelmakers, pricing will also be determined by local dynamics, which include additional capacity coming on board from some of the large steelmakers, including Tata Steel and JSW Steel.
While this could keep a lid on a sharp recovery in prices, a reduction in both iron ore and coking coal prices, which are the key raw materials used in the production of steel, could provide some respite to steelmakers, experts said.
Even though the September quarter is seasonally weak for steel producers in India because of lower construction and infrastructure activities amid monsoon rains, domestic prices this quarter have seen a significant correction compared to the previous year as well.
