FEATURE
Implied steel output loss seen at 14% in FY21: Analyst’s report Margin squeeze likely only - industry data excludes semis - billets/ blooms) over April-June.
Steel Insights Bureau
I
ndia’s finished steel production loss stood at 53 percent till June (from 26.5 to 12.5 million tons), implying a full year loss of around 14 percent on last year base, research house JM Financial has said in its Metals and Mining sector report. There was 12 percent loss for steel majors and 15 percent loss for secondary producers. Consumption registered 57 percent decline over the same period, though up marginally on month from 4.5 mt in May to 5.1 mt in June. India continued to be a net exporter of steel with exports of 3.3 mt (finished steel
Exports to get squeezed
Export prices of HRC continue to range at `2.5k+/ton discount to domestic prices. Quality of exports remain inclined towards low value add billets/blooms/HRC. Avenues to export to come under pressure going forward as: 1) China steel demand is likely to wane due to seasonal rains/floods, slowing construction activity 2) EU modifies steel safeguard measures to country specific quarterly quotas as
India finished steel production and consumption Particulars (’000 tons)
June 2020
MoM (%)
Y0Y (%)
1QFY21
QoQ (%)
YoY (%)
5.889
16%
-33%
12,544
-51%
-53%
Import
265
-51%
-58%
1,211
-3%
-33%
Export
1,552
21%
335%
3,266
78%
145%
Production
Change in Inventory
487
Apparent steel consumption
5,089
13%
-41%
10,694
-57%
-57%
Finished steel inventory
13,482
-3%
-11%
13482
2%
-11 %
India finished steel production by key players Particulars (’000 tons)
June 2020
MoM (%)
Y0Y (%)
1QFY21
QoQ (%)
YoY (%)
621
24%
-39%
1,435
-57%
-53%
1,017
9%
-38%
2,395
-30%
47%
104
112%
-70%
214
-77%
-80%
JSW Steel + JSPL + Essar Steel
2,088
15%
-7%
4,518
-32%
-34%
Others
2,058
15%
-43%
3,982
-65%
-64%
SAIL Tata Steel RINL
Source: JPC, JM Financial
20 Steel Insights, July 2020
“Steel majors are eyeing a `500-750/t hike in prices for the month of July on a low base (7 month low), counting on a marginal recovery in domestic demand.” countries exhausted full year quotas in first few months. India exported over 2 mt in 2019 to EU; Russia, Turkey, South Korea are other key exporters to EU which will likely re-direct material to other importing nations. Domestic steel demand recovered marginally in June with domestic sales mix increasing to 50 percent from 40 percent in May with the recovery in rural markets like tractors, motorcycles and roofing sheets. Domestic inventory levels in the industry increased marginally from 13.2 mt in March to 13.5 mt in June. Margins to be under pressure
Gross margins are likely to face a squeeze sequentially as lower blended realisations (export price down `4.5k+/t on quarter) is unlikely to be offset significantly by lower NMDC iron ore prices with its average prices down by `740k/t). Benefits of lower coking coal with average prices down $35/t on quarter, is likely to kick-in only by second quarter. “Steel majors are eyeing a `500-750/t hike in prices for the month of July on a low base (7 month low), counting on a marginal recovery in domestic demand,” the report said. Domestic demand recovery remains the key to sustainable profitability for steel majors and continues to hinge on pick-up in construction/automotive sectors.
