Steel firms breathe easy as raw material prices likely to stay range-bound

30th july 2018

Prices of steel-making raw materials are likely to move in a narrow range during the financial year 2018-19 due to increased supply pressure from major producing countries.

A recent study by ratings agency India Ratings and Research forecasts prices of steel-making raw materials, including iron ore and coking coal, to remain range-bound during the current financial year. The study estimates benchmark iron ore with 62 per cent Fe fines at Qingdao (China) to average at $65 a tonne for the current and next financial years. Similarly, coking coal prices (imports from Australia to China) are likely to average marginally lower at $170 a tonne for the current financial year.

The average domestic iron ore prices (65 per cent and above Fe lumps) surged by 41.1 per cent year-on-year (y-o-y) to Rs 3,328.8 a tonne during April 2017-February 2018, while the international prices (iron ore fines China 62 per cent Fe) increased by 1.7 per cent y-o-y to $69 a tonne during the financial year 2017-18.

“Iron prices are expected to largely remain range-bound in FY19 at the current levels (fines at Rs 2,660 tonne and lumps at Rs 3,050 a tonne). By the end of December, however, iron ore prices may remain elevated to around $71 a tonne (with 62 per cent Fe). The weakening of the Indian rupee against the US dollar will pose an upside risk to domestic prices. Further, average coking coal price for December quarter may stand at $180 a tonne, 17 per cent higher than the average price recorded for April–June quarter,” said Mahaveer Jain, associate director, India Ratings and Research.

Domestic iron ore prices are believed to have increased on account of higher steel demand in the country. Further, the suspension of operations at mines in Odisha due to non-payment of penalty for illegal extraction of ores also resulted in price hikes in January 2018.

Taking the opportunity, government-owned NMDC has raised iron ore prices by 5 per cent — with lumps and fines prices raised by Rs 150 to Rs 3,200 a tonne and Rs 2,810 a tonne, respectively, about two weeks ago. Iron ore prices have remained highly volatile so far this financial year, with NMDC first cutting them by Rs 100 in April before raising them intermittently during subsequent months.

A moderation in coking coal price will depend upon an increase in mining volumes in Australia and the United States. The recent tropical cyclone season (November 2017-April 2018) in Australia was near-normal.

The high cost of raw materials is likely to translate into a proportionate increase in the cost of production, resulting in domestic steel mills passing the cost on to consumers.

“The domestic steel prices are expected to remain firm during the year 2018-19, while we may see some moderation in prices in the coming months on account of monsoon due to a likely slowdown in construction and infrastructure activities in these months. We do not expect much pressure from the raw material prices. The domestic prices, however, could get impacted by the demand-supply situation in China (which is the largest steel producer) and the production cuts that the country undertakes in 2018,” said Madan Sabnavis, chief economist, Care Ratings.

During the financial year 2017-18, steel production in India grew by 3.1 per cent to 105 million tonnes and consumption increased by 7.9 per cent to 90.7 million tonnes. The upward momentum in production and consumption is expected to continue during the ongoing financial year as well.

Source: BUSINESS STANDARD