Local Indian hot rolled coil (HRC) prices have continued their downward journey in the past week, notching up losses for the second consecutive week, moving down by INR 300/mt ($5/mt) during the past week to around INR 33,500/mt ($532/mt) ex-works as steel mills started to offer discounts, traders said on Monday, June 1.
"Steel Authority of India Limited (SAIL) was reported during the week to be offering discounts of INR 1,000/mt ($16/mt) on HRC. With the largest steel producer announcing discounts, other domestic producers are expected to follow suit," said a Mumbai-based trader.
"The SAIL discount is also perceived to be large and the market has taken this as an indication of stockpiles at steel mills, depressing sentiments and prices at the dealers' end," the trader said.
Market sources said that steel mills' preference for discounts rather than adjustments of base prices indicates short-term uncertainty over demand.
The sources said that low transaction volumes over past several months indicated that the market has not been anticipating any demand uptick. Hence, considering steel mills' inability to push volumes into the market, they are not willing to pass on the benefits of lower raw material costs through adjustments of finished product prices and have instead decided to opt for the short-term pricing strategy of discounts, as some traders indicated.
Also, low import transaction volumes and the easing of import competition have prompted steel mills not to adjust their base prices even though import offers have been persistently lowered.
Sources said that ex-China HRC offers are down $15/mt to the range of $470-480/mt CFR Mumbai for July shipments, but only a few transactions for limited volumes have been reported in the market.
Although the Indian rupee has gained strength towards the close of the week, the fact that the local currency had earlier breached a new low of INR 64 to the dollar has prevented several importers from concluding transactions.
"The Indian rupee will see a lot of volatility and the currency market is not conducive to concluding import transactions," another Mumbai-based trader said.
$1 = INR 63.69