Teji Mandi Explains: Domestic steel prices slide on weak demand

Domestic steel prices have declined for a fifth week in a row due to the weak demand. Hot Rolled Coil (HRC) prices have dropped to Rs 64,220/tn in the domestic market.

On the other hand, coking coal prices have continued to surge up, putting pressure on spot margins. Coking coal prices have gone up 62% in the last two weeks. It has put pressure on the manufacturing cost. Spot spread is also down 24% compared with the peak in May 2021.

Discount Expands On Domestic Steel

The gap between domestic and international prices had narrowed significantly in the last few months. However, that gap has widened again with subdued demand, pushing the HRC prices down. Currently, domestic HRC prices are the lowest in the world, and it is 20-25% lower than the price of imported steel.

Looking At Exports

Domestic steel prices are placed at a significant discount to international prices currently. It will help domestic steelmakers to increase their volumes in the export market.

Indian steelmakers could expect to gain ground in the international market given the high discount attached with domestic steel. A similar trend has been observed in China, where steel exports rose 23% MoM due to A) Softened domestic demand and B) Chinese exporters are offering steel at ~10% discount to regional prices.

Closing Comment

Weakness in domestic steel demand appears temporary as monsoon is the historically weak season for construction activities. Post monsoon, the demand trend is expected to improve, helping prices to rise along the way.

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