Indian steel prices to correct in 2022
Indian steel prices will soften by 10%-15% next year as domestic and international steel spreads narrow. Supply constraints will ease due to stronger Indian crude steel production, with more material directed towards domestic end-users.
S&P Global Platts Analytics expects Indian domestic hot-rolled coil prices to average Rupees 53,550-Rupees 56,700/mt ($705-$745/mt) in calendar 2022. This compares with average prices of Rupees 63,000/mt year-to-date in 2021, which is 58% higher than Rupees 39,761/mt in CY 2020. The pre-pandemic average in CY 2019 was Rupees 38,567/mt.
The spread between India domestic and China domestic HRC prices blew out to
$220/mt on Nov. 15, the highest level since April 2017, according to Platts data. Since late 2017, there has been a close correlation between Indian and Chinese steel prices.
The two prices diverged in October this year but have subsequently started to narrow again.
We expect the spread to revert to historical norms, with the Indian price influenced by subdued market conditions in China in 2022 due to slower economic growth and the downturn in the country’s property sector.
High domestic Indian steel prices this year have in large part been due to Indian mills lifting exports to take advantage of the higher prices on offer overseas, which has tightened local supply. India has particularly targeted Vietnam, Italy, Belgium, and Turkey.
Over April-October, India exported 14% of its finished steel output, a similar ratio to the year before, but up from 8% in April-October 2019, Platts Analytics calculates based on Joint Plant Committee data.
Production increases
We expect Indian crude steel production to reach 122 million mt in CY2022, compared with around 115 million mt this year, on the back of stronger output from JSW Steel’s Dolvi steelworks in Maharashtra, and from Steel Authority of India Ltd.’s works in West Bengal.
On the demand side, manufacturing purchasing managers’ index data suggests a decent pipeline of domestic orders, though car making continues to be hit by the semiconductor shortage
Indian factories are struggling to pass on the full extent of rising costs from inputs such as steel. Construction and machinery companies have struggled to absorb the high steel prices, and infrastructure project timelines have been pushed back.
Inflationary pressures should ease next year, however, with the drop in steel prices, boosting demand and consumption. Less attractive overseas prices will result in greater availability of steel for domestic customers.
S&P Global Ratings has forecast Indian GDP growth of 9.5% in the fiscal year ending March 31, ahead of 7.8% growth in FY2023.
A severe outbreak of the omicron variant of the coronavirus could dent domestic steel demand and operations.
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