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A variety of responses and feedback from end-using sectors, policy planners, industry associations are filling up the pages. It is difficult to take a dispassionate view on the issue from the producers’ or users’ points of view. Let us look at some of the facts.

Steel prices (HRC as the mother product) went up by Rs 16,700 per tonne during July to December 2020. These prices went down by Rs 3,100 per tonne during January to June 2020. On a longer time perspective, HRC prices during January-December 2019 went down by another Rs 5,500, and therefore, the net increase in HRC prices stands at only Rs 8,100 per tonne.

The cyclicity has been very much a part of the steel industry and for that matter for any commodity pricing. For many of the finished products made out of steel, the drop in steel prices is not passed on to end customers as the same is taken to compensate the losses incurred by them on previous occasions (steel price rise was one among many other factors) and there are compelling reasons offered by them to justify this action.

Steel production through BF-BOF route uses iron ore of 1.65 tonne and coking coal of around 750 kg per tonne of steel. Thus prices of iron ore has a higher impact on cost of production of steel.

For steel production through EAF/IF route, prices of iron ore impact prices of sponge iron which is the primary raw material for these producers along with non-coking coal. In case of coking coal (prime hard low vol) price rise was minimal, but thermal coal prices went up from $53.46/t in July 2020 to $98.16/t, which influenced domestic non-coking coal prices. Iron ore prices went up by Rs 2,650 per tonne during July-December period.

In Odisha, the auctioned mines are yet to commence production and there has been a lower production out of the existing mines in the state. As a result, there is a supply shortage of around 25-28 MT of iron ore in the state. This has indeed adversely affected small and medium steel players who are dependent on iron ore produced in Odisha. Availability of TMT Bar, wire rods and partially the structural section availability from these segments was a casualty, leading to price rise of these items.

The export of raw materials (especially natural resources) needs to be viewed separately from export of finished steel items. In earlier years, countries importing iron ore from India used to export finished steel made out of it to India. Export of iron ore (legally or illegally mined, fines not being used domestically) has come down over the years. In the present situation, it is also used in making pellets which are exported and adding to the problem of temporary shortage. Finished steel exports, HRC in particular, is a value-added export and needs not be equated with export of raw material. It takes strenuous efforts and adequate branding to create and nurture export markets abroad and sudden withdrawal from the market is construed as undependable source and needs a long time to recoup. During April to November 2020, India exported 5.1 MT of HRC and imported 0.43 MT of the product, resulting in being a net exporter of 4.6 MT.

In case of stainless HRC and CRC, there was significant enhancement of raw materials which are not indigenously available. Nickel prices shot up by 40% during July to November 2020, molybdenum 27%, copper by 24% and ferrous scrap by nearly 45%.

During July to November 2020, the spread between HRC and CRC went up from Rs 7,610 per tonne to Rs 8,770 per tonne, while the spread between CRC and GPC has come down from Rs 6,730 per tonne to Rs 2,730 per tonne.

There is a repeated reference to Indian steel industry having been flooded with protective measures like ADD and safeguard duty. It is a fact the HRC (both stainless and non-alloy) have received ADD on imports by the Ministry of Commerce which has taken WTO-compliant steps not only for HRC, but also for CRC and wire rods. Actions against dumping under no circumstances should be categorised as protective steps.

The current level of customs duty on flat products at 12.5% is lower compared to the duties imposed on HRC imports by advanced countries and others. It is argued that duties can be brought down to 5% to facilitate more availability as it would not lead to higher imports from Japan and South Korea being under FTA (nil duty). But what about imports from Vietnam, Indonesia, Thailand and even Turkey?

We would be penalising the domestic industry for capacity augmentation in anticipation of a rising domestic market. The clamour for duty reduction on steel items must consider that Chinese imports would flood Indian market through changing the origin of materials and it would engulf CRC and coated products (electro galvanising) in addition to HRC.

An unprofitable steel industry in the country has consistently been denied bank credit on the certification of negative category by the credit rating agencies. At what point the profitability is termed as profiteering must be benchmarked before it is accepted as a strong reason to deprive the industry of the capex for capacity augmentation as specified in the NSP of 2017

Source: https://www.financialexpress.com/industry/profiteering-or-profitability-what-domestic-steel-industry-wants-from-price-hike/2170600/

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Steep steel prices hurt several sectors as China gorges on ore https://akrealty.in/steep-steel-prices-hurt-several-sectors-as-china-gorges-on-ore/ Tue, 12 Jan 2021 13:43:52 +0000 http://akrealty.in/?p=535 With several automakers recently announcing price increases to offset input costs, steel prices have come under the spotlight.

Steelmakers in turn have been impacted by surging global prices of iron ore, the main raw material, as demand from China has soared. And with Indian iron ore production having seen a dip in recent months, steel producers have been caught in a bind.

“China’s focussed fiscal stimulus for the construction sector has led to a sustained and strong uptick in steel demand there,� said Arnab Hazra, deputy secretary-general, Indian Steel Association (ISA). “Steel demand in China is expected to cross the 1 billion [tonnes] mark for the first time [in 2020].�

As a result, China’s demand for iron ore too went up. “India exported far more iron ore in the nine months ended December, compared to any entire fiscal year previously,â€� Mr. Hazra added. 

Market intelligence firm SteelMint said on Friday that Indian iron ore exports had doubled to 40.7 million tonnes (mt) in 2020, from the previous year’s 19.1 mt. Of this, China alone accounted for 38.1 mt versus the 16.6 mt that it imported from India in 2019. Iron ore exports are attractive for Indian miners because global prices are now at about $170 a tonne. “Earlier, iron ore touching $100 was news. $165-170 is a once-in-a-lifetime price,� said a steel industry official, requesting anonymity.

Australia is a major trading partner for China but bilateral ties have run into rough weather after the former called for a probe into the origins of the COVID-19 pandemic. While Australian wines and coking coal have faced higher duties and customs delays, iron ore has so far been spared, as 60% of China’s requirements have traditionally come from the island nation.

After record iron ore exports in October, Australia saw its figures dip 2.2% month-on-month in November, ostensibly due to the cyclone season when Australian port activity tends to get affected.

“The global supply chain dynamics are being redefined by geopolitics,� said Srivats Ram. MD, Wheels India, which has seen a 20% increase in steel costs over the last 12 months. “[This] has affected the elasticity of response, especially at a time when there has been a severe contraction followed by a rapid increase in demand, with container availability and ramping up issues further congesting trade. Sudden changes in demand occurring at the same time have caused some disruptions in the demand-supply equilibrium globally,� he added.

The other factor influencing iron ore supply and prices in India is a decline in production, especially at mines in Odisha. 

The ISA wrote to the Prime Minister’s Office (PMO) last month flagged a dip in domestic iron ore production as a key factor that had left its members with little option but to raise steel prices. Iron ore output fell 30% from the year-earlier period to 92.1 mt in April-October 2020, it pointed out. The ISA also urged a temporary ban on iron ore exports and cited the iron ore shortage and frequent increases in domestic iron ore prices by state-run NMDC as particularly impacting smaller steel producers – which account for about 40% of India’s 140 mt steel capacity.

‘Obfuscating issue’

In a separate letter to the PMO, the Federation of Indian Mineral Industries (FIMI) contended that the ISA was ‘obfuscating the issue’ and defended the iron ore sector’s actions. Local steel prices had risen ‘an unprecedented’ six times in November and December, FIMI said, arguing that it wasn’t necessary for the steel industry to raise local prices in line with international rates. It also said the country earned foreign exchange via iron ore exports.

FIMI also said that of the 33.4 mt of iron ore exported between April and October, 22 mt were of a grade that the local steel industry did not require as input material. It also pointed out that some steelmakers had been awarded iron ore mining leases but that their output had been far lower than targeted.

In February-March of 2020, 19 mines in Odisha whose leases had expired came up for auction. No sooner were the auctions completed, the COVID-19 lockdowns kicked in. It takes time for a new lease holder to start and ramp up production. Also, the previous leaseholders were allowed time to evacuate the remaining inventory from the mines. “Add to all this the disruptions that a rainy season and poor logistics bring in, iron ore production was naturally hampered,� Mr. Hazra of ISA said. Only 4-6 mines of those auctioned had started active production, he added.

A senior executive in a major steelmaker, requesting anonymity, countered FIMI’s claim, saying: “While using the time allowed for six months to evacuate their inventory, the previous leaseholders of mines in Odisha ended up blocking ports, railway sidings, road networks and railway lines for iron ore which they had earmarked for export. They did not have to pay any premium to the government compared to huge premiums the new lessee has to pay. So the earlier leaseholders were willing to pay a far higher cost for logistics to clear inventories within the statutory limit. Even if new leaseholders wanted to evacuate their output from Odisha for domestic use during the period, they could not do so due to blocking of logistics by earlier leaseholders.�

Emphasising China’s role in soaking up global steel supplies, he said, “China’s steel consumption in 2020 was 72 mt higher at 980 mt, than in the previous year. Its own production was only 58 mt higher at 1,054 mt in the period. It had to import steel and iron ore.�

The executive at the steelmaker pointed out that smaller steel players had not yet recovered from COVID-19 related lockdowns, either due to severe losses, poor working capital availability or lack of local iron ore availability. This had led to a shortage of construction steel, which is made mostly by secondary steel players.

By mid-December, long product prices had risen 15% over June, Motilal Oswal Securities observed in a recent report. And ratings agency ICRA noted last week that realty developers may suffer a 5-6% hit on margins given rising steel prices.

On the impact of steel prices on automobile makers, the senior executive said that typically, the steel industry negotiates prices with auto clients once in 6 months. But due to the COVID-19 impact, prices remained unchanged for automakers between October 1, 2019, till the end of September 2020, he pointed out. Only for the six months beginning October 1, 2020, had rates gone up for supplies to automakers, based on the previous six months’ average which amounts to about ₹5,500 per tonne, according to him.

The steel industry official said he expects Chinese demand for steel will cool down. “We anticipate that by the middle of 2021� iron ore and steel prices will ease, the official added.

Source :https://www.thehindu.com/business/Industry/steep-steel-prices-hurt-several-sectors-as-china-gorges-on-ore/article33552833.ece

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