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Domestic flat steel prices likely to face temporary pressures from cheap imports: Icra reserach report

New Delhi: Domestic flat steel manufacturers may have to brace for a downward revision in prices, as the threat of cheap imports into India in near-term has increased, according to rating agency Icra.

It said domestic flat steel prices are likely to face temporary pressures from cheaper imports.

The rating agency also said that expectations of lenient production curbs in China during winter months and rising steel output amid a seasonal moderation in demand have led to a steep correction in Chinese steel prices in November.

"The threat of cheaper flat steel imports to India in the near term has increased and, as a result, domestic flat steel producers may have to brace for a downward revision in prices, especially in Q4 FY2019 (fourth quarter of 2018-19 fiscal)," according to an Icra research report.

 Domestic flat steel prices likely to face temporary pressures from cheap imports: Icra reserach report

Representational image. Reuters.

The growth in China's steel consumption sequentially eased in the July-September period due to weakened demand from the auto sector, and some moderation in the property segment.

On the other hand, steel production growth remained high at 5.8 percent and in anticipation of stricter environmental curbs during the winter months, production recorded an all-time high of 82.5 million tonne (MT) in October.

"However, following a shift in the government's policy from imposing blanket winter production curbs to allowing local governments to decide on meeting their individual emission targets, uncertainties about actual production cuts and the possibility of a resultant supply glut in China have resurfaced," Icra said.

Jayanta Roy, senior vice-president and group head, corporate sector ratings, Icra, said Chinese hot rolled coil export offers have declined from $560 per MT in the first week of October to $477/MT at November-end.

A major reason for the sharp correction in prices, he said, is the ongoing oversupply concerns in China during winter, leading "us to believe that seaborne steel prices would remain soft in the coming months. However, a typical pick-up in Chinese demand post the winter months is likely to lead to a recovery in international steel prices in the next fiscal".

Even after a sharp fall in international steel prices, the anti-dumping duties in India on flat products do not kick in at the current price levels. As a result, steel imports, especially from free-trade countries such as Japan and South Korea, are likely to remain high in the coming months, which would keep domestic steel production growth under check, Roy added.

"While the domestic hot-rolled coil prices are currently trading at a marginal premium over imported prices, we believe that the steep reduction in international steel prices recently would make steel imports cheaper from January 2019 onwards, when these shipments start hitting Indian shores, and would, in turn, exert pressure on domestic steel prices in the fourth quarter of FY2019," he noted.

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Updated Date: Dec 04, 2018 16:14:45 IST