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HRC prices in the traders’ market rose slightly in the week ended 19th Jul’23 on optimism around stimulus measures and possible production curtailment in H2CY23 in China. Spot spread also remained stable at INR 31,800/te as slight uptick in coking coal prices was offset by higher HRC prices. In longs, however, prices continued to decline in the seasonally weak monsoon period. In China, despite government authorities pledging stimulus in key industries including steelmaking and auto, we remain circumspect on demand uptick. That said, ‘flat control’ policy might not only support global prices, but also aid Indian exports to South-East Asia. We remain optimistic on the ferrous sector with JSPL (BUY; TP: INR 750); Shyam Metalics (BUY; TP: INR 570) and Tata Steel (ADD; TP: INR 125) as our key picks.

HRC prices continue the uptrend in second week of Jul’23

Domestic HRC prices in the traders’ market remained resilient with a slight increase of INR 100/te (0.2%) WoW. This comes on the back of major steel players rolling over HRC prices for the month of Jul’23. However, our channel checks indicate that spot discounts up to INR 1,000/te are still being rolled out in certain categories. Coking coal prices rose by USD 2/te though it still remained below USD 200/te, resulting in spot spread remaining stable at INR 31,800/te (down 0.7% compared to the level in Mar’23). Primary rebar prices however continued to be under pressure, declining by a further INR 800/te, though there was a modest uptick in the DRI-IF value chain pushing up pellet and secondary rebar prices slightly. HRC-rebar premium at INR 4,250/te is at 77th percentile of the past 8-year range. Export prices in the Far East and South-East Asia remained stable in the week under reference as major steel players in the region already raised prices a week back – by USD 10-15/te for Aug’23. This week, Tokyo Steel has rolled over its prices for Aug’23 deliveries

China: Hopes of stimulus and production curtailments

In China, the ministry of information and information technology, in a statement has mentioned that the government will step up efforts to formulate and introduce plans in 10 industrial sectors for stabilising growth in automobiles, electronic products and steel. While credit metrics have remained ahead of street expectations in Jun’23, we would wait for growth in key downstream sectors, especially real estate. We will also keep a close tab on the rollout of ‘flat control’ policy in H2CY23, which might result in Chinese exports dropping and giving an opportunity to Indian players to increase their export volumes, particularly to South-East Asia and Middle East.

Outlook: All eyes on supplies from China

While we are not very optimistic on demand uptick in China, we believe lower export volumes (if ‘flat control’ policy gets implemented) are likely to support global prices and also aid Indian companies to increase their market share in South-East Asia and Middle East. Besides, India’s HRC prices, in both domestic and export markets, have lately remained stable – even in the seasonally weak monsoon quarter. We remain positive on the ferrous space with JSPL (BUY; TP: INR 750), Shyam Metalics (BUY; TP: INR 570) and Tata Steel (ADD; TP: INR 125) as our preferred picks.

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