Steel prices have decreased to ₹64,000-65,000 a tonne from ₹71,000 last month on expectation of a supply surplus on levy of 15% export duty. Prices were flying at ₹76,000 a tonne in April. Interestingly, the excess supply comes amid forecast of weak demand with onset of south-west monsoon slowing down infrastructure activities from this month.
The condition in the steel market is totally disorderly and demand has come to a standstill due to undercutting by dealers in expectation of a steep price reduction by steel companies. Steel prices had down by ₹5,000 a tonne since imposition of export duty and HRC (hot rolled coil) steel prices are currently hanging at ₹65,000 a tonne, said, Kamlesh Bagmar, Deputy Head of Research, Prabhudas Lilladher.
In a bid to rein in run away steel prices, the government late last month imposed a 15% export duty on a range of finished steel products that accounted for almost 95% of India’s overall finished steel exports in last two fiscal. Finished steel exports accounted for 10% of the country’s steel production in the last two fiscal. The recent fall in coking coal and iron ore prices will be a relief for steel companies.
With the domestic industry’s capacity utilization touching 83% after seven years, many steel makers have declared large scale expansion plans increasing to around 130 million tonnes to be implemented over next 10 years. Following the export duty levy, the pace of execution of some of these expansion projects could slow down as mill cash flows could weaken notably going forward if the export duty is maintained over the medium term.