Steel prices rolled over in May on the back of a muted demand and correction in international prices of coking coal and iron ore, coupled with a revision of raw material prices.
Steel producers said the market was not conducive for passing on a hike. According to a recent Icra report, prices of hot rolled coil, the benchmark for flat steel, corrected by around Rs 2,750 a tonne in May 2017.
Price correction was, however, not a cause of worry yet as raw material prices were revised downwards as well. Iron ore prices in the global market had come down from a high of $90 a tonne to stand at $60 per tonne.
In Odisha, private miners reduced prices of iron ore by Rs 150-200 a tonne.
Coking coal prices have also seen a sharp decline from $314 a tonne in mid-April to $170 a tonne in the middle of May. Together, iron ore and coking coal account for about 75-80 per cent of the input cost of steel.
According to Icra, margins of steel companies would improve from the second quarter despite the weakness in price.
"The benefit of the decline in coking coal and iron ore costs would start flowing in from the second quarter and push gross contribution levels of blast furnace players higher by around Rs 2,000 a tonne over in the fourth quarter of FY17, assuming domestic steel prices remain at prevailing level," said Jayanta Roy, senior vice president at Icra.
However, Roy cautioned that unless domestic demand picks up, the industry prospects would remain challenging. "Chinese HRC prices have corrected 17 per cent since March and if the trend persists, then exports would not be that remunerative," he pointed out.
Domestic steel mills had been heavily relying on exports to overcome the sluggish demand in the home market. After a gap of three years, India became a net exporter of steel in FY17 with exports surging by more than a 100 per cent.
"The global steel industry still suffers from significant overcapacity, which would limit the upward movement of international steel prices. In a period of subdued export realisations, the possibility of pushing higher volumes in the domestic market cannot be ruled out, thereby exerting pricing pressures in the domestic markets as well," Roy added.
However, the domestic steel industry was protected by the imposition of the five-year anti-dumping duty on imports of hot-rolled and cold-rolled flat steel products. In the meantime, it would augur well for the industry, if demand gets a push from the National Steel Policy and the policy for providing preference to domestically manufactured iron and steel products in government procurement.