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Steel
Import HRC prices set for another increase in Feb, while spot coking coal
hits $290/MT- Domestic demand faces tough base comps
• CIS import prices set to increase for Feb production: The metals press (MB,
SBB) indicates that the Russian and Ukrainian HRC steel prices are likely to
increase for the Feb production from current levels of $640/MT. Price increase
in the range of $20-40/MT is being talked about. Chinese export HRC prices
have already crossed $675/MT (current HRC export price near $680/MT).
Domestically in China, Baosteel increased flat product prices by $15/MT for
February.
• This does provide lee way to domestic HRC price increase in India, but
demand supply dynamics mean increases to lag global prices: Indian steel
mills increased flat product prices by ~3%, though our channel checks indicate
that trade buying has not picked up. We estimate current domestic HRC prices
near Rs33K/MT. Assuming import CIS HRC prices increase to $680/MT in Feb
in line with the Chinese export prices, this could potentially allow Indian
domestic mills to raise domestic prices to Rs34.5K/MT (5%) in February.
However we do not see mills either going through for such a large price increase
in Feb or even if they do, the entire price increase being absorbed by the market,
given a) weakening real demand situation on the ground, which is resulting in
apparent demand (steel trade buying) also not re-stocking aggressively (which
normally happens early in price increase cycle, and the re-stocking fuels further
price increases). Auto sector growth rate is likely to moderate from ~30% YTD
to more sedate levels and Auto was a large driver of flat product demand and b)
Increasing flat product supply in the market from domestic expansions. We
believe demand revival is key for the large flat product price increases to be
absorbed.
• Just like cement, challenging base for steel demand: Average monthly steel
consumption in India in the Jan-March 2010 period stood at 5.2MT, while Dec-
10 stood at 4.5MT. To achieve even 6% y/y growth, domestic consumption
would need to increase ~20% sequentially from Dec-10 levels, a tough ask in
our view
• Long product price continue up-move, but are volatile: While seasonal
demand recovery is still sluggish, long steel price increases have been ahead of
HRC. Imports/Exports do not play a role in domestic long product pricing.
Given the sharp increase recently, some volatility in long product prices should
be expected.
• Spot coking coal hits $290/MT, spot impact on mills minimal in March
quarter, severe cost push in April-Sept period: J.P. Morgan coal analyst John
Bridges in his Overnight Coal Daily highlights that the spot coking coal prices
have hit FOB $290/MT (Platts Premium Low Vol). While spot impact is likely
to be minimal in the March quarter, cost pressure from the coking coal assuming
$300/MT would be $50-60/MT q/q for BF steel makers in India. Steel price
increases would need to hold over the same time period for margins to sustain
(for non integrated cos). Last year prices had not held due to surge in the
production
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