PremiumStrong domestic demand and handsome export opportunities has seen the steel industry's production and sales rise in the fourth quarter of 2020-21 compared with the preceding quarter, say analysts.
Revenue for steel companies thus is expected to improve 20% quarter-on-quarter (q-o-q)and 45-50% year-on-year (y-o-y) on account of higher realization and increase in steel demand, led by a recovery in state capex, auto production, white goods output and real estate construction.
Premium "Steel companies are expected to post a whooping 45-50% on-year increase in revenue, led by rising realisations (27% on-year increase) and healthy demand in the fourth quarter of fiscal 2021 on the low base of last year (sales and production by steelmakers was impacted in the last two weeks of March 2020 due to the lockdown)," said Crisil Research in a report on 8 April.
Tata Steel, JSW Steel, Steel Authority of India Ltd (SAIL), Jindal Steel & Power Ltd and AM/NS India (formerly Essar Steel) are the top five players, which account for about 55% of the country's installed capacity.
Domestic prices of flat steel is estimated to have increased by a significant 32% on-year, in the fourth quarter and is expected to remain elevated over the coming months on the back of higher international steel and iron ore prices.
"Steel prices in the world are at an all-time unprecedented high due to steep increase in the prices of iron ore as well as due to the strong growth in steel demand from China, India, USA, Europe and other emerging markets as global markets recover from a year-long slowdown with the reopening of business activities and vaccination drive," said Care Ratings in a report on 30 March.
It is expected that HRC (hot rolled coil) prices are expected to go up by at least ₹3,500-4,000 per tonne in April 2021. A ₹4,000 per tonne hike will take domestic HRC prices to ₹59,000-60,000 per tonne, which would be the highest level seen since 2008.
Higher international steel and iron ore prices along with strong demand from China, USA, Europe is driving international steel prices higher, making domestic steel makers also effected several price hikes since H2FY21.
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Premium Premium However, while this upward cycle in steel prices brings relief to the domestic steel companies, it has spooked the end-user sectors who are worried about steep increase in their raw material cost. Besides, increase in steel prices also raises fear of inflation rising in the domestic markets as raw material cost for many sectors goes up which will have a cascading effect on consumers.
Among the worst-hit sectors are automobiles and infrastructure sector. The construction and real estate sector accounts for almost 55-60% of total steel consumption followed by auto sector which accounts for nine percent and capital goods and consumer durables with a share of 8% and 6%, respectively.
Among the basic metals sub-groups, flat steel products which includes products such as HRC and CRC, mainly used in auto sector has seen the sharpest rise.
"Most of the top auto manufacturers are expected to take a second price hike in the range of 1 -3% in April 2021 after already having taken 3-4% hike this year, to offset impact of higher steel cost. The Ministry of highways and construction has said that higher input cost can affect viability of some construction projects," added Care Ratings.
Steel prices are expected to remain at elevated levels in 2021 fueled by higher demand which will have an impact on the core inflation as well and keep core WPI inflation at elevated levels.
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