The steel industry in India witnessed contrasting trends in the calendar year 2023. During the second half of the year, prices edged down. In a way, this reflected the overall global price weakness, caused by inventory and higher imports. Having said that, a modest recovery is on the cards in the first quarter of calendar year 2023.
In this article, let’s dive into the latest steel prices news, what happened in 2023 and what to expect in 2024 as far as the steel industry’s performance is concerned.
Reviewing Market Performance
In 2023, mentioned below were the key steel market performance highlights:
- Sharp Exports Drop: In 2023, steel exports dropped 25% to 8.2 mnt. China aggressively conquered traditional markets of Indian mills with the help of relatively cheaper offers. Global factors like high inflation, and energy prices impacted demand in a negative way. A weak export scenario impacted the domestic steel prices.
- Weak Global prices: Chinese steel rates temporarily increased slightly after lockdown restrictions were eased in December 2022. Since the beginning of April 2023, experienced a trend reversal as they started decreasing rapidly as the effect of latent demand withering away.
Real estate sector-related concerns impacted prices as well as demand in China. US, and European steel prices have been on an uptrend since February 2023, but they started trending down in May due to a weak operating environment. High-interest rates and energy costs adversely impacted demand, while high Chinese exports impacted prices. This, in turn, impacted domestic prices, especially flat steel products.
- High Imports: Y-O-Y, in 2023 steel imports hiked by 25% to around 7.5 mnt. As a result, Indian steel users were prompted to import due to domestic prices being premium to seaborne prices. Steel consumption in India increased by around 13% y-o-y and India became the preferred destination for cargoes, in the middle of fast-falling steel prices across the globe. Moreover, steel production edged up and frequent capacity additions ended up in oversupply in the Indian market. The oversupply reflected heavily on the prices.
- Inventory Pile-up: Keeping weak prices in mind, primary mills took maintenance breaks from July 2023 to September 2023. Not only that, even the secondary mills cut down the production. From September 2023 onwards, capacity utilisation beefed up in the pre-festive, post-monsoon season. The need-based purchases, higher domestic production, and inventories piling up, (especially long steel products) exerted downward price pressure.
- EBITDA Margins: In 2023, primary steelmakers’ EBITDA margins hiked substantially as input price pressures subsided. As per the steel market experts, in Q3 2023, the per tonne EBITDA of a prominent primary mill hiked to $153.32/t from $42.23/t in Q3 2022.
It is because average coking coal rates fell by approximately 20%, and iron ore rates edged down by 1%. Thermal coal rates in H2 encouraged higher utilisation.
Expected Market Performance
In 2023, steel demand increased by a whopping 13% primarily due to pre-election spending by the government. As 2024 will witness the General Elections, some projects will be paused till the new government is formed or the former government takes charge after the formalities.
- Potential Hiccups: As and when the Election Code of Conduct comes into action, construction projects are highly likely to take a backseat. In case a new government is formed, there can be funding delays. An additional capacity of 17 mnt of capacity will be added in the calendar year 2024 and that adds up to a total of 184 mnt.
- Price: In case the expected demand does not rise at the same pace, there will be a supply surplus. This, in turn, will impact the domestic steel prices (be it TMT, rods, angle prices etc.) as they might pressure as the inventories would be on the higher side.
- Mills: The mills may increase export allocations due to the reasons mentioned above. China’s dominance in the export market is likely to remain at around 8 mnt per month in case the government policies, stimulus etc. fail to increase a domestic demand recovery.
- Export Scenario: It’s important to note that in 2023 China marked its presence (stronger than India’s) in Vietnam and the Middle East due to cheaper offers. These are India’s traditional export markets. If the situation remains the same, the Indian export presence will be restricted solely to the EU market.
- Price Support: As the regulatory mechanisms will beef up, the BIS standards might have the effect of imports reining, and in a way, this will support steel prices.
Summing It Up
In 2023, the Indian steel industry faced fluctuations due to declining prices influenced by global factors like higher imports and inventory. Exports fell by 25%, and China took the lead without wasting any time. While the prices faced an uptrend initially, in April 2023 the Chinese steel prices fell rapidly. High imports, high production, and maintenance breaks caused oversupply. This, in turn, created price pressure.
The steel market outlook for 2024 forecasts challenges such as potential elections-induced construction delays, a supply surplus impacting prices, and the likelihood of increased export allocations. Steel prices news is likely to revolve around these factors.