Additionally, Indian steel units could get a fair share of the global markets ceded by Russia and Ukraine, particularly the European Union, West Asia and North America.
The Russia-Ukraine war is likely to have an adverse impact on Corporate India and most other segments of the economy as it could dampen a resurgent global demand and jack up input prices, but India’s steelmakers may gain by default. Though the benefit will come primarily from a spike in local prices, realisations from exports could also see a rise.
Since the outbreak of the war, there has been a sharp rise in steel prices in major global markets. In the last ten days, the rate went up by as much as 15% in key European markets. The prices may continue to remain on an upward trajectory for several weeks. High global prices caused by the eastern European conflict have already widened the gap between India’s landed cost of steel imports and the domestic prices of the alloy. In the case of hot rolled coil (HRC), for instance, the gap is now Rs 10,000/a tonne or 15%.
With 7.5% customs duty, cesses and freight cost, there is anyway a significant trade barrier that allows the domestic steelmakers to benchmark local rates against imports. With landed cost of imports surging and demand being buoyant, it will be much easier now for Indian steel companies like state-run SAIL and private companies like JSW Steel, Tata Steel and JSPL to hike the local prices.
In fact, some of these firms have already hiked prices of various grades of steel by Rs 2,000-2,500 a tonne with effect from March 1 (local HRC prices are now hovering around Rs 68,000/tonne). “There is likely to be another two rounds of price hikes soon. We are expecting Rs 2,000/tonne hike (for HRC) before March 10,” JSPL managing director VR Sharma told FE.
Additionally, Indian steel units could get a fair share of the global markets ceded by Russia and Ukraine, particularly the European Union, West Asia and North America.
“The expected shortfall in international markets because of the ongoing war is likely to keep steel prices at buoyant levels in the near term, which will benefit Indian steel players. Also, export opportunities will allow leading steel companies to operate at higher capacity utilisation rates,” said Jayanta Roy, senior vice-president at Icra. Though Japan and Korea can export to India sans tariff barriers due to India’s bilateral free trade agreements with these countries (exports from these countries will mostly head to the western markets where the market prices are higher).
Industry sources said Russia and Ukraine together supply around 40 million tonne steel in the international markets. Sanction imposed by various countries on Moscow and the ravages of the war on the latter will make it difficult for both of them to resume exports in the near future even if the war stops anytime soon.
Most of the exports from these two countries used to go to Europe, West Asia and North African nations.
Prices in Europe have gone up by 100-150 euros per tonne to 1,150 euros a tonne in recent weeks, giving space to the Indian steel industry to sell more in the region. We can ship steel at $1,150 a tonne, which is about $100 dollar less than the price in Europe,” Sharma said. “Currently, these countries (EU, West Asia and North America) consume 10% of our exports, which could soon double,” he added.
Of course, a rise in input prices will impact steel companies’ margins, but since iron ore is available locally – primary steelmakers have captive mines – the impact is going to be moderate. Also, domestic demand for steel is getting stronger, with new orders coming from construction, buildings, pipelines and MSMEs.
High steel prices in the domestic market have benefitted India’s primary steel makers in FY22. Despite the pandemic, SAIL could pare its debt from Rs 51,481 crore at the end of FY20 to just Rs 19,128 crore at the end of December 2022.
