The increase in India's domestic steel consumption from 2QFY21 has led to higher cost which might invite a government intervention to curb prices, India Ratings and Research said on Friday.
In its steel monitor report, the agency cited that India's domestic consumption in November 2020 was at 8.93 MT, 7.8 per cent higher on MoM level but 2 per cent lower in terms of YoY comparison.
"The improved domestic demand is reflected in steel prices which further increased in November 2020."
"Consumption within the flat products segment has been supported by a demand from the automobile and consumer durable industry, due to the festive season, in addition to the ongoing work-from-home culture and preference for personal mobility."
However, the report pointed out that steel mills have raised prices with consumption growing, resulting in a reduction in inventories at steel mills, in addition to the high iron ore prices because of tight domestic supplies.
"The current supply shortage with the improving demand is leading to the high HRC prices."
"With the high steel prices making operations less viable and thus less profitable, end-use industries may defer consumption slightly and this could arrest the rate at which steel prices are increasing. While steel mills are pushing for a further increase in prices, there could be a possible government intervention since the cost of infrastructure projects are up 20-25 per cent over pre-Covid levels."
Furthermore, auto original equipment manufacturers and vendors are pushing for government intervention due to the high prices.
In terms of crude steel, India production over January-November 2020 was 12.3 per cent lower on YoY basis due to the Covid-19 disruptions over 1QFY21, but improved MoM in November 2020 to 9.25 mt.