Domestic steel mills to benefit from low ore prices, ICRA

The Dollar Business Bureau

Domestic steel mills may benefit from lower iron ore and coking coal costs in the current year but sustained weakness in demand still remains a concern, ICRA said.

The ratings agency in a report said, "Sustained demand weakness remains a concern for the domestic steel industry with a growth of mere 4.6% and 2.6% in FY2016 and FY2017 respectively due to sluggishness in key end-user industries. "Weak demand conditions have led to a correction in domestic hot rolled coil (HRC) prices by 7% in May 2017."

The report also specified that the seaborne iron ore prices have corrected by 36% between February and May of 2017 dragged down by a correction in Chinese steel prices, steadily rising iron ore inventory levels at Chinese ports, and addition of low cost fresh supplies from Australia and Brazil, it said.

Interestingly, during this period, domestic lump ore prices have shown a diverging trend, increasing by around 4%. However, the decrease in seaborne prices will make iron ore exports by domestic miners less rewarding, which will in turn increase the domestic availability thereby leading to a correction in the prices within the country in the coming months, the report detailed.

Seaborne prices of coking coal, the other key steelmaking ingredient for which India relies largely on Australian exports, have also seen a sharp decline from $314/MT (million tonnes) in mid-April 2017 to $170/MT in mid-May 2017 after the supplies from Queensland resumed post-cyclone Debbie disruption during April 2017.

Domestic steel production grew by 10.7% in 2016- 17 supported by the government’s trade protection measures and favourable export realisations, which led to a decline in India’s steel imports, and a doubling of steel exports.

(Source PTI)