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Domestic steel consumption remains strong

We expect strong domestic demand and low finished steel inventory to support domestic steel prices. India’s domestic steel consumption rose 9% YoY (3% MoM) to 9.97m, the highest ever monthly consumption. Declining exports and rising imports further indicate a strong rebound in domestic demand. Lower domestic steel inventory provides comfort on steel prices. Domestic rebar prices, however, have come under pressure due to rising supply and softened demand in the Construction segment, weighed by high prices of construction material such as cement and steel. On the other hand, domestic HRC prices remain strong (although down 5% in the traders’ market) on the back of strong demand and regional prices. However, easing iron ore prices, led by improving supply, are cushioning steel spreads. Thus, despite decline in steel prices, domestic steel spreads remain strong, up INR5,600–6,000/t over the 3QFY21 average (the strongest quarter by far).

Domestic steel demand up 9% YoY in Jan’21

* India’s steel consumption grew 9% YoY and 3% MoM to 9.97mt in Jan’21. This growth comes on a strong base period of Jan’20 which also witnessed demand growth of 9% YoY.

* Demand growth has been supported by robust demand from Infrastructure and double-digit growth in Auto, White Goods, and Consumer Durables.

* However, we see some softness in demand in the Construction segment due to higher prices of building construction materials such as steel and cement.

* Domestic crude steel production rose 7% YoY (2% MoM) to 9.98mt.

Net exports lowest in 18 months; inventory remains low

* India’s steel imports rose 9% YoY to 520kt, whereas exports declined 16% YoY to 580kt. On a MoM basis, steel imports rose 2% YoY, while exports declined 6% YoY.

* As a result, net steel exports stood at 60kt, the lowest in 18 months. Historically, India has reported net steel imports in times of strong domestic demand.

* Domestic steel inventory with mills was down 18% YoY to 10.6mt. We estimate inventory to have remained below 10.5mt at Jan-end (12.7mt in Jan’20).

Iron ore prices easing on improved supply from Odisha

* NMDC has cut its iron ore prices by INR600/t (10–12%). This is the first cut in iron ore prices seen in the last nine months.

* Post this cut, NMDC’s iron ore prices stand at INR4,210/t for fines and INR5,100/t for lumps.

* However, NMDC’s prices are still 12–22% higher than the 3QFY21 average and up 50–60% YoY.

* The cut in iron ore prices is attributable to a ramp-up in production in auctioned iron ore mines in Odisha and declining steel prices in the Secondary Steel market. Essel mining, one of the largest merchant miners in Odisha, also cut iron ore prices by INR500–600/t.

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