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Flat steel prices soften on higher supply

Global crude steel production down ~2% YoY in January

According to data from the World Steel Association (WSA), global crude steel production was under pressure for the second straight month, down ~2% YoY to ~148mn tonne in January. This decline is primarily attributed to a fall of ~7% YoY in China’s production while the Rest of the World (ROW) was up ~4% YoY. However, there was a MoM recovery of ~8%, led by a surge of ~15% in China and ~2% in ROW. In January, India’s crude steel production growth slowed to ~7% YoY vs double-digit growth in the range of 11-19% YoY during June-December 2023.  On a MoM basis, growth stood at ~2%. As per provisional data, India’s crude steel production has grown ~14% YoY but fallen ~4% MoM in February, due to lower operational days.

Lull in activity during Lunar New Year takes a toll on steel prices

A three consecutive MoM rise in China’s exports prices of hot rolled coil (HRC) came to a halt in February with a decline of ~1% MoM. This was followed by a MoM fall in HRC prices of ~2% in Japan and ~9% in the US. Conversely, prices in North Europe rose ~1% MoM. Meanwhile India saw another subdued month, with HRC prices falling by ~1% MoM while primary long product prices remain largely flat MoM. While higher inventory and limited buying interest weighed on prices of domestic long products, absence of any major relief from imports, limited exports opportunities and increased supply from NMDC’s steel plant and Jindal Steel and Power’s (JSPL) new hot strip mill added further pressure to domestic flat prices. Current (March to date) domestic HRC prices are down ~2% MoM but primary long product prices are flat MoM vs February average. Apart from steel, iron prices also showed a downward trend with Australia and China falling ~8% MoM each. Current (March to date), iron ore prices in China and Australia are down ~6% MoM each vs February average. Domestically, NMDC did not revise prices after the price hikes on 24 January 2024.

Key non-ferrous metals show a mixed price trend  

In February, price of LME Nickel was up a mere ~1% MoM. On the other hand, prices of LME Aluminium and LME Zinc were down ~1% MoM and ~6% MoM, respectively. Prices of LME Copper and LME Lead were primarily flat MoM.

Thermal coal prices recover from the recent lows

Coking coal prices in China were down ~4% MoM followed by ~5% MoM fall in Australia. Thermal coal prices rose ~1% MoM in China; however, South Africa remains under pressure for the third consecutive month with a fall of ~4% MoM.  Current (March to date), coking coal prices in China and Australia drop further by ~6% MoM and ~3% MoM, respectively. Contrary to this, thermal coal prices in South Africa are up ~6% MoM vs the February average.

Our view: flat steel pricing pressure to persist

We believe primary long steel prices are close to bottoming considering the spread between primary and secondary rebar has fallen below the long-term average and the recent uptick in thermal coal prices. However, flat steel prices are expected to remain under pressure in CY24 on account of capacity ramp-up by NMDC and JSPL, inflow of imports and upcoming capacity additions by JSW Steel and Tata Steel. Aluminum prices are likely to see support from less supply of bauxite from Guinea, the second-largest producing nation, due to nationwide strike by workers' associations.

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