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Steel mills hike prices by INR4,000-4,500/t in May’21

Domestic prices still at a discount of ~INR8,000/t to imports

* Price hikes continue in May’21: Domestic Steel mills have hiked HRC/CRC prices by INR4,000/INR4,500 per tonne in May’21 to INR67,000/INR80,000. Flat steel prices have increased by ~INR11,000/t in Apr-May’21. It must be noted that HRC steel prices rose by INR7,000/t in Apr’21, leading to a cumulative price hike of ~INR11,000/t in Apr-May’21.

* Room for more price hikes: Post this hike, domestic HRC prices are trading at a discount of ~INR8,000/t to the landed cost of imports, implying room for further hikes. Currently, HRC import offers from Korea are at USD1,010/t.

* Exports to offset weak domestic demand: Even though domestic demand is currently weak, we expect the hike to be absorbed, given the higher cost of imports. We expect India’s steel exports to remain elevated in May’21 on lucrative export realization and weakness in domestic demand (due to local lockdowns). HRC export prices (FoB India) at USD950/t are INR4,000/t higher v/s domestic realization.

* With the recent removal of export rebates by China and the expected production cuts to follow, we expect regional demand-supply to stay tight, supporting steel prices.

* SAIL is our preferred play given its higher sensitivity to prices, on account of greater operating and financial leverage, as well as attractive valuations.

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