The second half of the covid-struck financial year 2020-21 saw an unprecedented rally in domestic steel prices which seems unstoppable even in the current FY22. A just-released Care Ratings report states that at the end of the fiscal ended March, domestic flat steel━Hot Rolled Coiled (HRC)━prices were up 40% since April 2020. Long steel, or TMT, prices are nearly 30% higher in that one-year period.
This is the highest level seen since 2008, the year of the financial crisis, the report points out, and correlates the up-cycle in domestic steel prices and a supporting bullish trend in the global steel prices and revival in domestic demand. The rally in global steel prices were initially driven single-handedly by China until other large economies like the USA and Europe came roaring back to the market armed with stimulus checks, because of which demand has been outpacing supply. Sellers who idled capacities due to the pandemic earlier have been slow to ramp up post-lockdowns.
Going forward, Care Ratings predicts, enhanced outlays for key sectors like defence services, railways, and roads, transport and highways would provide impetus to steel consumption which is expected to grow by 10-12% in FY22 to cross 100 million tonne. The Union Budget for 2021-2022 has a sharp 34.5% y-o-y increase in allocation for capex at Rs 5.54 lakh crore, and lays a special thrust on infrastructure creation and manufacturing.
The report suggests that pandemic-induced stimulus packages in many countries will play an important role in keeping the demand up over the year. China’s relative absence from the world export market and higher import of steel from China will also be a factor.
Additionally, China’s renewed commitment (at the just-concluded climate summit) to bring down production levels in 2021 to reduce CO2 levels will be an important factor that will strengthen steel prices.
In sum, Care Ratings says, demand-supply imbalance in the global market will continue to present export opportunities to domestic players.