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Domestic steel prices stage smart recovery on global cues: ICRA

31 Aug 2017 Evaluate

The domestic rating agency, ICRA in its latest report has said that steel prices in the domestic market staged a smart recovery, taking cues from the buoyancy in global steel prices despite a moderate demand growth of 4.4 percent in the first four months of the financial year of 2017-18. It also said that since June 2017, global steel prices have registered a sharp recovery, mainly driven by the Chinese government's supply-side reforms to reduce domestic steel over-capacity, a steadily declining trend in Chinese steel exports on the back of resilient Chinese domestic steel demand.

Also, the rating agency has said that international steel capacity utilisation levels too increased from 68 percent in December 2016 to 73 percent in June 2017. Apart from structural factors like closure of excess capacity, it believes that up-fronting of production and purchases ahead of a planned winter shutdown in China is also a factor leading to the buoyancy in steel production and prices witnessed since June 2017. Therefore, it noted that continuity of this price momentum hinges upon the sustainability of demand from the steel intensive real-estate and infrastructure sectors in China.

The report further indicated that between July and August of FY18, domestic hot rolled coil (HRC) prices have increased by around 10 per cent, reaching Rs 39,250/MT in the fourth week of August from Rs 35,750/MT in the first week of July. Additionally, it noted that domestic steel mills have also continued to push exports, which grew 66% between April and July FY18. Further, it explained that a steadily rising export volume has enabled domestic steel mills to register a healthy annualised production growth of 7 percent and a capacity utilisation of around 81 per cent during the period from April to July of FY18. However, it pointed out that gross contribution levels of steel players are likely to improve sequentially in the current quarter, given that steel mills stand to benefit from buoyant steel prices in both the domestic and international markets in Q2FY18.


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