Steel prices have been falling consistently since April, 2019, touching a low of 32,500 a tonne in September, 2019 from the peak of 45,000 a tonne in late 2018. The steel industry was hit hard by the demand slowdown over a period of six months from April, 2019 to September, 2019, which resulted in a steep drop in steel prices.
By end November, 2019, it was widely believed by producers and users alike, that the decline in activities in the commodity segment has bottomed out, more so as the destocking process was thought to be nearly complete. This perception led to a gradual rise in steel prices that was to be absorbed by the market.
Steel is a global commodity which means that the price of steel varies on a daily basis. Prices in the normal course are generally influenced by several factors, including natural disasters, the strength of the American dollar, and the general condition of the world economy.
But no one had anticipated that a killer virus by the name of Coronavirus (COVID-19) would arrive soon and wreak havoc across the world. The damage that COVID-19 wrecked from January, 2020 onwards, set back the global economy, bringing not just the fabric of normal life to a halt but also almost all developmental activities across the world. With the sudden unexpected fall in demand for steel and other raw materials and metals, steel prices again underwent a downward spiral.
However, with the Indian economy slowly picking itself up again, steel prices in the month of June, 2020 began to slowly rise. This has provided some well-deserved relief to the steel manufacturers suffering from declining revenues and postponement of most of the capital expenditure plans. The upcoming festive months are expected to yield benefits and market demand is also expected to pick up again.
FACTORS BEHIND PRICE HIKE
According to ArcelorMittal-Nippon Steel India, price recovery is important for long-term sustenance of the steel industry. A combination of cost-push and demand-pull factors normally fuels the price rise of raw materials. But the past few months has seen several other factors in play that contributed to a sudden spurt in the price rise of TMT bars and steel.
- Initial push for price rise came from the global price growth witnessed in major raw materials prices of iron ore and coking coal. Unabated Chinese appetite for iron ore and coking coal on the back of 7% rise in crude steel production (China produced 904.2 MT of crude steel during January to November 2019) was the primary driver to this price trend. China’s import prices of iron ore for 62% Fe which was ruling at US$ 86 per tonne in October, 2019 rose to US$ 96 per tonne in January, 2020, a growth of about 11.6% within 3 months. Another incident that highlights this trend was the fob Australian export price of premium low volume coking coal which was ruling at US$ 145 per tonne rose to US$ 153 per tonne, a rise of over 5.3% in the last 3 months.
- Restocking by stockist’s and fresh offtake by automobile, white goods, packaging, and infrastructure sectors.
- Rise in NMDC prices of iron ore and CIL prices of coking coal in the domestic market.
- Growth in the global economy coupled with increasing rising per capita income driving the global construction industry (The world’s largest consumer of base metals commodities, including steel). This in turn will lead to the expansion of the global TMT steel bar market at a CAGR of almost 9% during the forecast period. TMT steel bars are one of the major steel products that are used as reinforcement bars in building the supportive frames of modern infrastructure structures.
- Increasing usage of steel scrap (also called secondary steel) in the production of steel, fuelled by the increase in iron ore prices and gradual depletion of high grades of iron. Generally, steel is produced using two major primary raw materials, iron ore and steel scrap. Since steel is 90%-99% recoverable, usage of recycled steel makes the process environmentally feasible. Also, the use of recycled steel for manufacturing TMT reinforcement bars is more energy efficient. Further, the recent advances in technologies are also helping promote the use of recycled steel. This factor is expected to have a positive impact on the overall market growth.
The sentiment in the manufacturing sector has also turned bullish after proactive measures taken by the Central Government vide special packages to revive the economy. Green shoots are already visible in the real estate and consumer durable sectors. The production of TMT bars (Carbon/Alloy/SS) during the past few months at 23.3 MT indicates regular flow of orders from infra, building and construction sectors, although it is lower than originally envisaged. There has also been a rise in the consumption of TMT bars and steel in the first 9 months of the current fiscal, by as high as 11.4% compared to the previous year. Further the perception of bottoming out in the market was also evident in the consumers’ surveys carried out by the RBI and other agencies which indicated that the deterioration of the overall market situation has tapered off and the new order position, a sub-component in the surveys, reflected a growth.
The reversal of the downward trend and rising business sentiments was also attributed by market experts to the unleashing of economic reforms in the critical sectors and stimulus measures in terms of higher public investment in infrastructure detailed in the 2020 budget. Further, the regular rise in Sensex values during the period defied the fluctuations in the market outlook, reflecting the sustainability of the equity market.
According to the World Steel Association, India’s steel demand is likely to face a sharp decline of 18% in 2020 while the global steel demand (excluding China) is expected to fall by 11.6% due to the Covid-19 crisis. Although the downturn is led by consumer and service sectors, massive dislocations in spending, labor markets, and confidence are fuelling declines in steel-using sectors.
The global steel body also predicts that India is likely to witness a rebound of 15% in 2021. Further, the reduction in global steel demand will be mitigated by an expected faster recovery in China than in the rest of the world. In India, the global steel body believes that the Government’s support to rural income, as well as expected consumption related to the upcoming festive season, will greatly help in substantial recovery of demand for consumption-driven manufacturing goods in the second half of 2020. Further, the body also believes that supported by Government’s stimulus, recovery in construction will be led by infrastructure investment such as railways.
Market analysts feel that steel’s long futures contract on ICEX has been trading firm as the global steel price setter, Beijing has laid out plans to bolster its economy. In 2020, China plans to invest 800 billion yuan (US$ 114.38 billion) in the railway system; 1.8 trillion yuan in highways and waterways, and another 90 billion yuan in the civil aviation. In lieu of the anticipated demand for steel in the coming months of 2020 and mills hiking offer prices, stockists and retailers have stepped-up purchases.
Coming to steel prices outlook, leading consultancy firm, MCI (Metals Consulting International Limited) feels that in the context of the longer-term price cycle, expected changes to the steel supply-demand balance in 2020; and review of the medium-term outlook for iron-ore prices, points to a protracted steel price recovery. Further, MCI believes that the steel prices in 2020 will remain close to the 2019 price levels, with perhaps a small price recovery in 2021, and no notable pricing improvement until the next peak in the steel cycle which can be expected at end-2022.
One of the best known Indian steel manufacturers, VINAYAK STEEL LIMITED, is all geared-up to meet the expected demand for steel in the coming months.
Leading TMT steel bars manufacturer, VINAYAK STEEL LIMITED is a prominent manufacturer and supplier of the best-of-its-kind genuine strongest and long-life TMT steel bar Fe-550, that conforms to IS: 1786:2008 BIS standards (a standard equivalent to a number of international standards like ASTM A615 Grade 60 of the USA; BS 444 Grade 460 of Britain; BST 500 of DIN 488 of Germany).
VINAYAK STEEL’s high-grade Fe-550 is extremely robust with guaranteed assurance of top-notch equilibrium, safety and stability to a concrete structure, allied with the ability to greatly resist dynamic loading with varied yield and tensile strength. In every sense, it remains an ideal construction material for coastal, marine or underground construction structures.
Fe-550 TMT steel bars manufactured by VINAYAK STEEL involve the latest technology with robust quality-check processes including intense anti-corrosion testing methodologies, in extreme rusting conditions. Most importantly, every VINAYAK’s Fe-550 steel bar carries a BIS Certification confirming its adherence to IS 1786:2008 (Contains the Standard Mark, Cast / Lot number, Grade, Size, & Corresponding test results).
To extract the best out of VINAYAK STEEL’s Fe-550, it’s advisable that its best selected in accordance with the design requirement of the construction structure.
VINAYAK STEEL, with its well established in-house infrastructure Capabilities and Capacities plus comprehensive stock of raw material and finished products, is ideally positioned to continually provide the best quality TMT bars for all types of construction needs, for the years to come.