Teji Mandi: Chinese market cools off, leads to mild correction in steel prices

Steel prices, along with the entire commodity pack, have seen a one-way rally through the last few months. The rates of hot-rolled-coil (HRC), at its peak, touched an all-time high of Rs 58,000 per tonne (ex-Mumbai). The prices were surging due to the constrained supply and pick-up in demand from construction, automotive and white goods sectors.

The domestic hot-rolled coil (HRC) prices since then have gone through a mild correction due to the destocking from dealers in China and weakness in the secondary steel market. The prices have moderated to ~ Rs 57,083/t in the retail market in January.

The China factor:

A primary check suggests that prices at the producer level continue to remain strong. However, the Chinese traders are destocking at lower margins. The traders are trying to clear inventory before the Chinese New Year. China’s export prices have reduced by ~5% in January. Furthermore, severe cold is impacting the demand from the construction sector in China.

With price correction in China, domestic HRC prices are trading at a mild discount to exports-for the first time ever. This has put Indian manufacturers on a strong footing in the Far East and Western

world markets where prices have remained firm. Domestic steel players are also benefiting from thriving demand from the local market.

Weakness in secondary steel market:

The secondary steel market is also showing price correction in January.

Steel prices in the secondary market have fallen by 6% in past 15 days. Declining steel prices in the secondary market could tilt the consumer preference in its favor. If the buyers start preferring to buy from the secondary market, it could pose a few challenges for primary manufacturers, forcing them to take a price cut.

Closing comments:

The mild correction in January is due to the trading activities in China ahead of the New Year. However, the pricing range remains on the higher side. A lot depends on factors like iron ore prices and future demand to determine the price direction.

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