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The fourth quarter earnings of domestic steelmakers in 2014-15 are likely to be bleak as the industry continues to grapple with weak domestic demand and cheap imports.
Steel imports are expected to be at a record 9.31 million tonnes in 2014-15, surging 71 per cent over the previous fiscal year.
“Imports, coupled with subdued domestic steel demand growth, have worsened the weak steel pricing environment. Steel prices in India have declined by around 19 per cent in the past six months,” said Abhay Lijawala, Research Analyst at Deutsche Bank Market Research.
Industry officials estimate that the average realisation or the average price of steel has fallen by ₹1,500-2,500 a tonne due to weak global prices.
“Despite the fall, domestic steel prices are around 10-11 per cent higher than the landed cost of imported steel. Therefore, unless there are some import curbs, things won’t change much going forward,” said a senior official at a Mumbai-based steelmaker.
Cheap ore to blame
Indian steelmakers have been impacted indirectly due to the sharp fall in iron ore prices and depressed global steel rates. The two factors have made imports cheaper than the domestic product.
Ironically, larger companies such as SAIL and Tata Steel have not been able to capitalise on lower global iron ore prices as they rely on captive iron ore.
Kawaljeet Saluja of Kotak Institutional Equities expects non-integrated steel companies such as JSW Steel to benefit. The Sajjan Jindal-promoted company does not have captive iron ore and has benefited from cheaper iron ore imports.
The weakness in the domestic markets is expected to continue both on the iron ore side and in the prices of finished steel.
Saluja said in a recent report that with iron ore prices falling 21 per cent to $48 a tonne in the last month, the global market will remain oversupplied as four large miners will add over 200 million tonnes per annum of incremental supplies over the next 2-3 years.
He added that the slowdown in China will impact steel prices, which will create further room for price cuts from Indian steelmakers unless the government curbs steel imports by hiking import duty.
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