Steel prices crash as export duty weigh heavy, demand dries-up

Steel prices have crashed to ₹64,000-65,000 a tonne from ₹71,000 last month on expectation of a supply glut on levy of 15 per cent export duty. Prices were hovering 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.

Moreover, most of the stockists are refusing to build inventory on expectations that prices will fall further in coming days. Markets expect steel prices to touch ₹60,000 a tonne next month and drop to ₹55,000 in August but may not touch ₹ 40,000-45,000-level seen during the peak Covid pandemic times.

Kamlesh Bagmar, Deputy Head of Research, Prabhudas Lilladher, said the condition in the steel market is totally chaotic and demand has come to standstill due to undercutting by dealers in expectation of steep price reduction by steel companies. Steel prices had fallen by ₹5,000 a tonne since imposition of export duty and HRC (hot-rolled coil) steel prices are currently hovering at ₹65,000 a tonne.

15% export duty

In a bid to rein-in run away steel prices, the government late last month imposed a 15 per cent export duty on a range of finished steel products that accounted for almost 95 per cent of India’s overall finished steel exports in last two fiscal. Finished steel exports accounted for 10 per cent of the country’s steel production in the last two fiscal.

However, the government exempted steel semis from the ambit of export duties. Following this, semis exports, which had fallen by 26 per cent last fiscal to 4.9 mt, may see a significant jump in the current fiscal. Domestic steel demand had declined 7.2 per cent month-on-month and expected to fall further. The recent fall in coking coal and iron ore prices will be a relief for steel companies.

Kunal Motishaw, Research Analyst, Reliance Securities, said a decline in domestic realisation from the current level seems inevitable as companies were relying on exports in the last few years but now they have to tap domestic market with the imposition of hefty export duties.

With the domestic industry’s capacity utilisation touching 83 per cent after seven years, many steel makers have announced large scale expansion plans accumulating 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 significantly going forward if the export duty is maintained over the medium term.