With China’s new stimulus boost for its realty sector, the Indian steel industry is hopeful that fewer Chinese steel shipments will find their way to Indian ports. Industry analysts say that the stimulus will potentially increase China’s domestic steel demand, hence reducing the country’s need to export elsewhere and bring stability in steel prices in India.
The move is expected to reap short term benefits for the Indian steel companies as domestic HRC (hot rolled coil) prices become at par with Chinese import prices. “In the last few months dumping of steel had increased and steel realisations had been showing a down-ward trend. With this stimulus package, the construction sector will see an uptick in China thereby reducing the problem of dumping for those grades of steel and other metals associated with the building and construction industry,” Niladri B, Partner, Grant Thornton Bharat said.
“Potential stabilization of the economy, especially the property market, may support steel demand in China, thereby boosting not just sentiment but also steel/ steelmaking raw material markets,” Morgan Stanley analysts added.
However, analysts suggest a wait and watch approach for long term impact since the effect of the stimulus package in China remains to be seen.
Steel prices in India are significantly influenced by the quantity and price of Chinese steel available in Indian markets.
The Chinese domestic steel demand has slowed down significantly, as the property sector, which accounts for 50% of domestic steel consumption, is going through its weakest cycle in over a decade. Weak domestic demand and over-production have resulted in China’s increased share of exports. China’s current net steel exports, at 10% of production, are the highest since March 2017 brokerage firm Nomura observed.
The impact on flat steel will take more time to be felt, and the industry will need to wait for further reforms and stimulus for a wide-ranging positive impact. Industry executives agreed that while the stimulus package comes as a relief for Indian steelmakers, the extent of the long-term impact remains to be seen, and will depend on further initiatives taken by the Chinese government to boost its property market.
“There is such a huge capacity overhang of Chinese metals industry that even a small percentage fall in their capacity utilization translates into a big dumping problem for the world in sheer tonnes. The hope is that this issue will be on hold for some time now,” he added.
However, analysts said that Chinese imports levels will remain elevated over the next couple of months due to lag effect even as green shoots for domestic steel spread start to appear.
The Chinese reforms package, coupled with sustained demand would lead to reduced dependence on exports for volume growth.
“Uptick in excavator sales, monetary easing measures, and the China government’s resolve to shore up the property sector should support domestic demand and HRC margins,” Nomura analysts added.
Analysts expect India HRC prices to remain range-bound for the second half of the fiscal and recovery to start in FY26 given the current scenario. India HRC prices are largely influenced by China’s HRC import parity prices along with domestic supply and demand dynamics.
“We expect China’s export HRC prices to remain range-bound over the next 3-6 months, resulting in suppressed domestic prices for Indian steel producers,” analysts from Nomura said. India HRC prices have corrected 39% from the highs of April 2022 which in turn is causing domestic steel firms to experience pressure on margins.
Analysts however said that Chinese HRC prices have hit a trough indicating that recovery is around the corner. Domestic steel prices are now broadly similar to import parity prices (vs. 8-9% premium over the past year), according to a Morgan Stanley report.
From: financialexpress
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