As was expected, Indian mills have raised flat steel prices in Jun 2021 to close the gap with regional prices, which had rallied sharply in the first fortnight of May 2021. According to a recent report by Motilal Oswal, prices have been raised by Rs 3,000 a tonne for HRC and Rs 5,000 a tonne for CRC. Average HRC prices for Q1 FY22 are Rs 11,000 a tonne (20%) higher Q-o-Q, which implies another record EBITDA quarter for flat steel producers. Domestic HRC, now at Rs 70,000 a tonne, is still at a discount of ~10% to import parity prices. However, this might be the last of the hikes in India as China’s domestic and export prices have corrected sharply in the last fortnight, posing a risk to regional prices.

Source: Steelmint/MOSL

Price hikes to further boost margins for steel companies

Price hikes continue: With domestic steel supplies remaining tight due to higher export bookings and domestic steel prices trading at a sharp discount to import parity, domestic steel mills have hiked flat prices by Rs 3,000-5,000 a tonne in Jun’21 to Rs 70,000 a tonne for HRC and Rs 87,000 a tonne for CRC. As a result, HRC prices are now higher by Rs 14,000 per tonne over Mar’21 exit prices. Average HRC prices for Q1 FY22 are higher by Rs 11,000 per tonne (20%) over 4QFY21, which would result in higher margins for flat steel producers.

Spreads improve further despite a rise in coking coal: Despite the recent surge in coking coal prices to $ 177 per tonne CFR India (up 32% MoM), spot HRC spreads are Rs 8,500 a tonne higher than Q4 FY21. With rebar prices not being hiked, spreads for the same are Rs 4,000 per tonne lower than Q4 FY21. Spot steel spreads for HRC/rebar stand at Rs 45,200/Rs 30,700 per tonne.

Further price hikes unlikely: Domestic HRC, now at Rs 70,000 a tonne, is still at a discount of ~10% to import parity. We believe this might be the last of the hikes in India as China’s domestic and export prices have corrected sharply in the last fortnight, posing a risk to regional prices.

Source: Steelmint/MOSL

China export offers decline; pose a risk to regional offers

China’s domestic steel prices remained volatile in the last fortnight as authorities there took measures to curb speculation in prices. Currently, China spot HRC prices are trading at $ 867 a tonne, down 17% from recent peaks (though up 2% WoW).

In line with our expectation highlighted in our note earlier, China HRC export prices have declined 5% WoW (11% in the last two weeks) to $ 945 per tonne.

With export prices still remaining at a premium of ~9% to domestic HRC prices, there remains further downside risk to export prices as they have historically traded at a premium of ~4% to domestic prices.

Experts expect weakness in China prices to also percolate down to regional prices in coming weeks.

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