India-based credit ratings agency CARE Ratings has stated that it expects the increase in steel prices over the last one year to ease amid improving supply. Following various stimulus packages, a sharp rebound in global steel demand had significantly widened the gap between demand and supply, resulting in an upsurge in steel prices.
Led by China and India, albeit at a lower base-effect, global steel production in the first five months this year increased by 15 percent year on year. CARE Ratings said it believes that the improving supply-side situation is expected to abate any further increase in steel prices; however, it is unlikely that global prices may witness any steep correction from its peak levels. The ratings agency stated that the decline in prices will only be gradual, largely supported by the continuing robust growth in steel demand and higher iron ore prices. CARE Ratings also indicated that it expects that global steel prices will likely follow the trend of iron ore prices.
The demand in the Indian steel market decreased amid the second wave of the pandemic, but the agency expects domestic demand to rebound following the end of monsoon season, largely driven by the infrastructure and construction sector. Domestic steel prices are currently hovering around a marginal discount to international prices as domestic steelmakers believe any further increase in prices may weigh down their domestic sales volumes. This discount is likely to go away following the correction in international steel prices.
The agency stated that large integrated Indian steelmakers would continue to benefit from the export markets amid their competitive advantage from lower export volumes from China and the cost advantage gained by lower domestic iron ore prices.