Indian local hot rolled coil (HRC) prices have remained stable during the past week at INR 34,750/mt ($489/mt) ex-works, with across the board discounts of INR 250/mt ($3.5/mt) on offer from most large steel mills even as trading activity has remained at low levels in reaction to further negative news on industrial output, SteelOrbis was informed.
According to the traders, the market is expected to remain in a negative zone over the medium term and hence most buyers - intermediaries and end users - are in no mood to make fresh bookings.
Government data released during the past week showed that India’s factory output as indicated by the Index of Industrial Production (IIP) had declined 1.1 percent during August 2019, for the first time over the past 28 months. Factory output growth during April-August 2019 was announced at 2.4 percent, down from 5.3 percent during the corresponding period of previous year.
Capital goods manufacturing industry, one of the major steel consuming sector, recorded a negative growth of 21 percent during August 2019, the biggest decline since 2012, the government data showed.
“The negative growth in industrial production clearly indicates structural problems in the economy. In such environment no manufacturer will be willing to increase bookings of raw materials and this is being reflected in the local HRC market too,” a Mumbai-based trader said.
“Discounts are being offered across the board. But discounts cannot spur trading activity at a time when demand for finished products are falling and factories are clearly lowering capacity utilization levels,” the trader added.
According to a steel sector analyst at a Mumbai-based financial advisory firm, even though domestic steel mills have kept their base HRC price unchanged for current month deliveries, local HRC prices still face significant downside risks despite large steel mills like JSW Steel and Tata Steel announcing lower production during the third quarter.
Large inventory build up over the past several months at steel mill end will continue to put supply side pressures on HRC prices and production cut by steel mills will have limited impact in bringing balance to the market, at least in the medium term.
$1 = INR 71.06
