Rising Chinese demand brings good fortune for Indian steel sector

New Delhi, Jan 15 Strong demand and prices for steel in China should provide a cushion to regional and Indian steel prices already at lifetime high levels, Motilal Oswal Institutional Equities said in a report on Friday.

"China's domestic steel prices remain strong and are at nine-year highs (led by robust overall demand and higher raw material cost locally) which we believe should provide a cushion to regional and Indian steel prices (at lifetime highs)," the brokerage said in its report on the steel sector.

Steel prices have already touched all-time high in the domestic market and are currently hovering around Rs 57,250 per tonne. Through Q3, HRC (hot roller coils) and Primary rebar prices increased by Rs 12,000 per tonne and Rs 15,500 per tonne respectively.

On average, per-tonne HRC/Rebar prices were up by Rs 6,500/Rs7,200.

Higher prices have also been supported by increase in Iron ore prices, which on an average, rose by Rs 1,270 per tonne in Q3, driven by strong steel production and also iron ore shortage after the auction of 19 mines in Odisha which did not match up the production rates prior to the auction.

But one of the reason for an upturn in the steel sector is rising demand in China. The country's December 2020 trade data exhibits a normalization of the steel trade as net steel exports turned positive YoY for the first time since the onset of the pandemic. While the country's steel exports rose marginally YoY for the first time in eight months, imports (which had surged 100 per cent due to supply disruption in China) also declined YoY for the first time in ten months.

According to the brokerage, demand for flat steel remains strong, with passenger car sales up 7 per cent YoY.

"We believe demand for long steel has however moderated, possibly weighed by weakened construction activity due to weather conditions and the resurgence of Covid-19 cases in parts of the country," the report said.