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Steel prices to fall further but bottom out in a few weeks

Mr Seshagiri Rao, Joint Managing Director and Group CFO of JSW Steel, told Moneycontrol “Steel prices, which have already contracted by 15% in one month, may fall by another USD 15 a ton as the China factor looms over the global steel industry. Prices will fall. China has led the fall, as demand in its domestic market is weak. Prices have already fallen to USD 500-520 a tonne range, from USD 600 a tonne. The fall in prices has been accentuated by a continued increase in rates of raw materials.

He said “The global steel industry’s capacity utilisation, which was 69.6% in December 2017, has picked up and the industry has added 68 million tonnes of steel in the first 10 months, as compared to last year. Of this, 44 million tonnes is from China. But China, hit by sanctions led by the Donald Trump administration in the US, can’t export. Experts expect Chinese exports to be lower this year, as compared to the 75 million tonnes in 2017. Unfortunately, demand in the Chinese economy hasn’t held on to consume the extra steel. Demand there has tapered off in the last two months, leading to excess supply. There is a liquidity problem, and sectors such as real estate and auto, haven’t been performing well.”

He added “While iron ore prices had fallen marginally, it has picked up again. Coking coal rates have also gone up. The combination of falling prices, and expensive raw materials, will hit margins. We will take a hit in one quarter. But it will largely depend on how much time it takes for the demand to recover, and for prices to start gaining.”

He said “Liquidity crunch had hit consumption and retail market in India. OEMs are holding on. But the liquidity position has improved in the last few days. This should improve demand in the coming weeks.”

Mr Rao said that he expected prices to bottom out in the next few weeks, when the demand should revive.

The crucial factor to look out for will be the supply-demand dynamics in China in the coming weeks.
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